Economy

The economy’s resilience so far to President Trump’s global trade war risks emboldening him and unleashing the sort of economic devastation that economists have long feared.President Trump has had little reason to scale back his global trade war ambitions with inflation subdued, unemployment stable and U.S. stock markets back to record highs.But the latest escalation, including 30 percent levies on the European Union, could deliver a much more painful blow to the United States. If the tariffs go into effect on Aug. 1, they could unleash the sort of devastation to consumers and businesses that economists have long worried about and that Mr. Trump has mostly avoided. Their fear stems from the specter of a stagflationary shock, in which inflation intensifies as growth stalls.“The higher that tariffs end up being, the more stagflationary it will be,” said Eric Winograd, an economist at the investment firm AllianceBernstein.Tariffs have already had an impact on the economy in a number of ways, and the levies now threatened against the European Union risk causing even more painful disruptions, given that the bloc and the United States are each other’s largest trading partner.Ursula von der Leyen, the president of the European Commission, said in a statement that Mr. Trump’s latest tariffs “would disrupt essential trans-Atlantic supply chains, to the detriment of businesses, consumers and patients on both sides of the Atlantic.”So far, businesses have been able to mitigate some of the impact of Mr. Trump’s levies. To get ahead of the tariffs, they stockpiled products earlier this year, causing imports to surge before later crashing down. Americans have grown less confident about the economy as uncertainty surrounding Mr. Trump’s policies has frozen businesses in place.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The consumer price index, due Tuesday at 8:30 a.m. ET, is expected to show an uptick in both headline and core readings, with the latter still well above the Federal Reserve’s target.

Groceries are seen at a Walmart supermarket in Houston, Texas, on May 15, 2025.
Ronaldo Schemidt | AFP | Getty Images

June’s inflation report will be looked at not so much for what the headline numbers show than what’s in the underlying data, especially whether tariffs are starting to have an impact.
The consumer price index, due Tuesday at 8:30 a.m. ET, is expected to show an uptick in both headline and core readings, with the latter still well above the Federal Reserve’s target.

But what will really matter is the extent to which President Donald Trump’s tariffs are hitting prices and potentially driving inflation higher.
“June is the first reading [when] these tariffs are really going to start to bite in a very noticeable way,” said Chris Hodge, head U.S. economist at Natixis CIB Americas.
CPI, which measures a broad basket of goods and services across the U.S. economy, is expected to show a 0.3% monthly increase for both headline and core rates, with the latter excluding volatile food and energy costs. On an annual basis, the index is expected to show a 2.7% headline reading and 3% on core.

For the Fed, both numbers will still be north of its 2% target, though central bank policymakers use a separate Commerce Department gauge as their primary forecasting tool.
More importantly, though, the CPI will provide a glimpse into how the Trump duties have worked their way into consumer pockets. When Hodge views the report, he will be looking at two key areas.

“I’m looking at autos and I’m looking at apparel, and last month’s reading was very low for both of them, which is very counterintuitive to what you would have” expected, he said. “These are two sectors that are very sensitive to increased tariffs.”
In fact, the May reading was subdued overall and seemed to indicate little upward pressure from the limited tariffs that went into effect in April. Both headline and core CPI rose just 0.1% on a monthly basis. New (-0.3%) and used (-0.5%) vehicle prices fell while apparel was off 0.4% and energy prices declined 1%.
Those numbers are generally expected to turn around, though Goldman Sachs economists notably think used vehicles still may have seen a decline based on trends at recent auto auctions. Goldman is forecasting a below consensus gain of 0.2% in core CPI for June. Fed officials believe core provides a better guide to long-term inflation trends.
Broadly speaking, economists will be looking to core goods trends as the best barometer for tariff impacts. The category includes items such as apparel and footwear, electronics, housing goods and furniture.
Goldman expects increases in auto insurance and air fares, and a general contribution from tariffs of some 0.08 percentage point to the core reading. Tariff-impacted sectors such as furniture, recreation, education, communication and personal care could see price hits, the firm said.
Economists also will keep an eye on shelter prices, which have been a stubborn component keeping readings higher.
“Our forecast reflects a sharp acceleration in most core goods categories but limited impact on core services inflation, at least in the near term,” Goldman said in a note.
The White House also will be watching the report closely — Trump and other administration officials have been pressuring the Fed to lower interest rates, and a higher than expected inflation reading could cause central bankers to dig in their heels further on policy easing.
“The Fed is going to want to make sure that longer run expectations are not becoming unanchored, and I think that the Fed is going to have to see that peak of tariff-induced inflation before they’re going to be comfortable cutting,” said Hodge, the Natixis economist. “We’re at a time right now where breaking down [the inflation report] into individual components is more useful and more necessary than ever.” More

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Ken Kies, a longtime tax lobbyist who worked for some of the world’s largest businesses, is now running the Treasury Department’s office that will administer Trump’s tax law.In January 2022, the Internal Revenue Service was cracking down on a tax dodge from the agency’s “dirty dozen” list of abusive shelters. To fight back, promoters of the scheme turned to the lobbyist Ken Kies.In a conference call with lawyers and financial advisers, Mr. Kies outlined plans to fight the I.R.S., including by capitalizing on his close relationship with a top agency official, according to a recording of the call obtained by The New York Times.Now Mr. Kies has become the Treasury Department’s top tax policy official. The former veteran lobbyist, who has worked for some of America’s biggest companies, was confirmed by the Senate last month to serve as Treasury’s assistant secretary for tax policy.It is not uncommon in President Trump’s Washington for lobbyists or other interested parties to get high-level positions at agencies where they once sought access on behalf of corporate clients. But Mr. Kies is not just any lobbyist. For decades, he has played an instrumental role in enabling some of the most lucrative and most important tax avoidance strategies used by multinational companies and the wealthiest Americans.When the Clinton administration sought to stem the tide of companies shifting trillions of dollars of profits into offshore havens, Mr. Kies led the effort on behalf of a coalition of businesses to kill the regulation. In the George W. Bush administration, Mr. Kies successfully pushed for legislation to make such offshore tax dodges even easier to execute. During the Obama administration, he fended off another attempted crackdown on those strategies.In 2017, as part of a sweeping package of tax cuts signed by Mr. Trump, Mr. Kies lobbied for a new tax break that provides a 20 percent deduction to certain businesses, which overwhelmingly benefits the richest Americans. And most recently, he advised the Trump Organization on a dispute with the I.R.S.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The president has earned a reputation for bluffing on tariffs. But he has steadily and dramatically raised U.S. tariffs, transforming global trade.President Trump’s on-again, off-again tariffs have prompted investors to bet that he will “always chicken out” and given businesses and foreign leaders hope that the leader of the world’s largest economy will ultimately back down from his threats if they prove too economically disruptive.Events of the past week have cast serious doubt on that bet. As Mr. Trump renews trade threats against more than two dozen trading partners, he is once again proving his fondness for tariffs, and embracing import taxes in a way that no other president has since the Great Depression.A self-described “tariff man,” Mr. Trump has continually extolled the virtues of heavily taxing imports as a way to raise revenue and cajole factories to relocate to the United States. While the president may ultimately give way on some of his most recent threats, he has still steadily and dramatically raised tariffs to levels not seen in a century.Over the past week, Mr. Trump has threatened 25 trading partners with punishing levies on Aug. 1 unless they sign trade deals that Mr. Trump finds acceptable. The list of countries he plans to raise tariffs on include some of America’s biggest sources of imports, including the European Union, Japan, Mexico, Brazil, South Korea and Thailand. Those countries had been in active talks with the United States about resolving Mr. Trump’s concerns in an effort to avoid tariffs.Several may still reach deals to avert some of the levies, including India, the European Union, Taiwan and Japan.But even if some deals are reached, American tariffs on trading partners are still likely to rise significantly. That was the case with the two trade agreement frameworks that the Trump administration has so far announced, with Britain and Vietnam, both of which leave double-digit tariffs in place.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersLast week, when US President Donald Trump’s tariff deadline came due, was a completely mad one in trade. The maddest since, ooh, a few weeks ago. It’s likely to be unmatched for madness for at least, say, three weeks — until August 1, the new D-Day when the bogus “reciprocal tariffs” will be imposed or deferred again. Financial markets are currently very sanguine indeed. They’re either on the Trump always chickens out “Taco trade”, or they don’t think the levies will do much damage.My favourite bit of last week was hosting the FT’s Economics Show podcast with Trade Secrets favourite Dmitry Grozoubinski, who managed to explain with logic and detail just why nobody knows anything. Today I announce the winner of the “readers guess the tariff letter” competition and examine Trump’s self-destructiveness. Charted Waters, where we look at the data behind world trade, is on a slight recovery in the dollar.Get in touch. Email me at [email protected] many letters? Your guesses revealedLast week, I asked readers to predict how many letters threatening tariffs Trump would send to trading partners by midnight on Tuesday. Given the randomness of the decision, there was commendable enthusiasm on your part to have a go at divining the unknowable.In the event, I reckon the count of Trump letters was 14 on Monday before our Tuesday night deadline. Another big batch came on Wednesday and Thursday, and the week was capped off with one to the EU over the weekend threatening tariffs of 30 per cent. There were lots of reader guesses clustered at zero letters, presumably on the grounds that Trump always chickens out. It turns out that he chickens out of tariffs, but is just about courageous enough to send some missives continuing to threaten them. At the top end of the spectrum, an honourable mention for boldness to Matthias Matthijs of the Johns Hopkins University SAIS graduate school for going much bigger than anyone else with 47. But the clear victor was Miguel Vidal, a senior economist at Deutsche Telekom, who guessed 12, only two away from the actual outcome. Say what you like about German corporates, but their people still have their eye on the global trade ball. Congratulations to Miguel and thanks to all who participated. I’ll come up with another quiz in due course.Demanding the undeliverable from LulaThe thing about coercion is that if you’re demanding from the other side something they can’t possibly give, you’re not actually coercing at all. You’re just handing out gratuitous punishment.Trump displayed this early on in his tariff campaign when he requested impossible actions on smuggling fentanyl and securing the border from Mexico and Canada, and then demanded Canada allow itself to be annexed. The latter request in particular was so offensive and bizarre that the ruling Liberal party in Canada got massive surges in poll ratings and unexpectedly won a general election by telling Trump to shove it.Trump seems insistent on doing this again, this time with President Luiz Inácio Lula da Silva in Brazil. In the first half of last week, Trump had sent his initial letters to trading partners whose threatened tariffs he adjusted up or down by small amounts according to no logic anyone could see. Thereafter, he got to the part of his list of enemies who deserved special treatment (“and now, we move on to liars”), including Canada, Mexico and the EU.Rather less obviously, it also included an extraordinary blast at Brazil, which he threatened with a 50 per cent tariff. Someone from Jair Bolsonaro’s camp presumably had Trump’s ear, because he focused the complaint on the current criminal proceedings into the former president but without making any particular demand. (Unless, laughably, he expects Lula to intervene in the criminal justice system on Bolsonaro’s behalf.)This is classic fentanyl/annexation behaviour. Trump makes a ridiculous demand of a foreign leader and most likely boosts their popularity when they cannot but defy him. (Interestingly, Mark Carney, the current Canadian prime minister, has taken a more emollient line with Trump recently, and it doesn’t seem to have done him much good.)Lula is economically and politically reasonably well placed to deal with this threat. Brazil runs a goods deficit, not a surplus, with the US, and exports far more of its world-beating agricultural exports to China than to North America. He isn’t doing well in the polls, but it’s a pretty safe bet this threat will create widespread national indignation which will put some support behind whatever retaliation measures he decides on. Brazilian conservatives will now have to explain why the country is being threatened on their erstwhile leader’s behalf.The EU continues to flail aroundAs it happens, Lula has also positioned himself on the pragmatic side of the trade issue. In particular, he supports ratifying and implementing the trade deal between the EU and the Mercosur trade bloc, surprising those who took the globalisation-sceptic rhetoric of his party literally. Would that this were also true on the EU side. If I had a soyabean for every time I said this I’d be a major agricultural exporter to China myself, but the political case for the holdouts in the EU (that is, France) to drop their objections to ratifying the Mercosur agreement is now screamingly compelling. The symbolism of linking the European and South American economies, geographically as well as metaphorically bypassing the protectionist US, would be great optics. Imagine the graphics on the press release. But the EU can’t currently get over France’s objections to Mercosur. And nor is there enough consensus among member states to agree what a serious threat Trump is to Europe to push it over the line.The EU’s response more generally to Trump continues to look weak and vacillating. As I wrote last week — don’t they subscribe to the FT in Brussels? — the EU keeps treating its dealings with Trump as a normal trade negotiation when they are anything but. And still they keep being disappointed. Here’s Bernd Lange, veteran chair of the European parliament’s international trade committee, after Trump’s letter to the EU was released over the weekend.The EU has now decided to show its lack of stomach for the fight by suspending its countermeasures against Trump’s tariffs which were due to come in tomorrow. An even more unforced error was European Commission President Ursula von der Leyen unilaterally announcing the time was not right for the EU to use the “anti-coercion instrument”, which it designed exactly for situations like this. Speak softly and leave your stick at home.Someone should needle Trump to link his tariff threats to some insane and insulting demand that the EU couldn’t possibly deliver, such as making JD Vance pope or agreeing that the US can enter and win the Eurovision Song Contest. Then you might see a bit of fighting spirit from the capitals of Europe.Charted watersAfter a truly awful first six months of the year, the dollar has had a modestly good week despite Trump’s renewed threats of tariffs. Perhaps because investors didn’t believe him.Trade linksOn the plus side for the EU, the bloc announced it had agreed in principle to sign a trade deal with Indonesia, though many details remain to be decided.Awful events are occurring in the southern African nation of Lesotho, which built a garment export industry based on market access from the US’s African Growth and Opportunity Act (Agoa) trade preference scheme Trump’s tariffs are now destroying.Trump has threatened tariffs of 50 per cent on copper, following the steel and aluminium (aluminum, whatever) example of making a widely used industrial input more expensive for the benefit of an industry with political heft but few jobs.FT colleagues Katie Martin and Martin Sandbu look respectively at whether the euro is uncomfortably strong for Europe’s economies and what a world without the dollar as a reserve currency would look like.The FT looks at whether the outline trade agreement (on the usual vague terms, nothing binding) Vietnam got from the US was worth it.Tobias Gehrke at the European Council on Foreign Relations gives his view of how the EU has mishandled dealing with Trump.Gary Hufbauer and Ye Zhang of the Peterson Institute think-tank look at how quantitative restrictions on trade (quotas and the like) are making a comeback.Trade Secrets is edited by Harvey NriapiaRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up hereFT Swamp Notes — Expert insight on the intersection of money and power in US politics. Sign up here More

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