The record-high rates seen in nearly a hundred years have not led to a sudden rise in inflation. This has puzzled economists, with some speculating that companies are hesitant to transfer the additional expenses to consumers.
Another reason supporting the idea of limited impact is becoming more convincing: the tariffs paid by importers are less than what is advertised.
Barclays economists used census data to determine the actual tariffs paid by importers in May. They discovered that the average weighted tariff rate for that month was approximately 9%, which is lower than both their initial estimate and other estimates.
Half of the imports in the US were not taxed, according to a study by Barclays, leading many American companies and consumers to purchase fewer goods from countries with higher tariffs, particularly China.
The surprising aspect of the American economy’s resilience is not how it responded to tariffs, but rather that the rise in the effective tariff rate was less significant than anticipated, according to a report by Barclays.
JPMorgan Economists suggest that actual tariff rates in June were lower than usual due to importers shifting to countries with lower tariffs or domestic producers.
The reduced effective rates can clarify why consumer prices did not increase as rapidly as some analysts anticipated.
Tariffs’ effects
The effect of tariffs has sparked debate. Trump recently claimed that tariffs are not responsible for inflation and requested Goldman Sachs to remove an economist who had predicted higher prices.
The latest tariffs generated $58.5 billion in revenue from January to June, as reported by the Penn Wharton Budget Model.
Inflation has increased lately, driven by higher costs of imported items like furniture.
The most recent inflation data continues to exceed the Federal Reserve’s target of 2% compared to the previous year, with wholesale prices in July reaching their highest level in three years, surpassing economists’ expectations.
The overall inflation situation in the first half of the year was not as severe as anticipated following President Trump’s tariff hikes.
Barclays research indicates that inflation hasn’t risen significantly due in part to the absence of tariffs on various products in the US at present.
In June, just 48% of American imports were subject to tariffs, as a result of various exemptions, as per analysis from the U.S. Census Bureau.
Certain items, including medications, specific electronics, semiconductors, and various imports from Canada and Mexico, were excluded from Trump’s reciprocal tariffs. Additionally, products with a minimum of 20% of their components made in the USA also received partial exemptions.
Barclays predicts that importers will probably face higher fees in the upcoming months.
Many of the current gaps can be resolved by imposing tariffs of 250% on pharmaceuticals and 100% on semiconductors, as threatened by Trump.
The White House announced that starting at the end of this month, it will eliminate the minimis exemption that allows tax-free shipments to the US if their value is $800 or less.
Some economists calculated higher tariff rates using different methods. According to the Yale Budget Laboratory, American consumers are currently experiencing average rates of 18.6%, which is lower than the 21.9% reported in late May. The lab’s economic director, Ernie Tedeschi, mentions that his research indicates that companies have been paying even lower rates on average.
Barclays predicts that average rates will likely reach 15%, surpassing the current 10% and last year’s 2.5%. Other economists forecast even higher rates, suggesting that the full tariff impact is yet to come.
Many American companies are paying lower rates than the base rates indicate due to a decrease in imports from China that are subject to high tariffs.
Inflation refers to the rise in prices of goods and services over time.
American companies increased their imports earlier in the year in response to anticipated tariffs, resulting in decreased imports in subsequent months. As stocks are reduced, imports are expected to rise once more, according to Barclays economist Mark Cus.
Barry Roth, an importer of pre-owned vehicles from Canada to American dealers, stated that he brought in roughly 1,000 cars per month on average until November last year.
The number increased to nearly 1,500 in January as dealers tried to predict tariffs. Currently, due to a 25% tax on many Canadian cars, he considers himself fortunate to bring in 400 vehicles monthly.
Dealers will need to purchase cars at higher prices or reduce their inventory as their current stocks run out. Prices are expected to rise gradually in the future.
More companies are stating that they are more inclined to transfer their tariffs to their customers in the upcoming months.
Many companies raised prices as they waited for clarity on rates. With final rates now clearer, economists anticipate a wave of companies requesting higher payments from customers as part of their strategic pricing approach, according to Aditya Bhave, an economist at Bank of America.
Randy Carr’s World Emblem company, based in Florida, imports patches for uniforms of U.S. police and rescuers from China, Vietnam, and Cambodia. Initially, the company refrained from raising prices due to fluctuating tariffs, resulting in over $1 million in additional costs.
He now has more confidence in implementing tariffs, so his company will raise the prices of East Asia-made appliques by 6% to 25% starting in September. Waiting is deemed illogical, he explains.
Translated by InvestNews.
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