Trumponomics was supposed to be a disaster! Then why hasn't the US economy fallen off a cliff (yet)?
Despite higher import duties on practically all of its trading partners, Trump's tariffs haven't fueled a massive spike in consumer prices in the US yet. On Tuesday, a widely followed measure of inflation in the US accelerated slightly less than expected in July on an annual basis as Trump's tariffs seemed to show a muted impact. The consumer price index increased a seasonally adjusted 0.2 per cent for the month and 2.7 per cent on a year-on-year basis, the Bureau of Labor Statistics reported Tuesday. The CPI had risen 2.7 per cent in June, when compared with the year earlier, while being slightly above the Federal Reserve's 2 per cent target. Does it portend an impending one-time price increase to serious long-drawn inflation is really the big question.
There are at least three reasons why broad economic metrics still look good.
One, Trump inherited an economy that was growing at over 2 per cent, near full-employment, and subdued inflation. It will take some time to wind down.
Second, with tariffs looming after Trump repeatedly heralded threats, importers in the US front-loaded shipments from across countries to beat the tariffs. A lot of items on American retail shelves and the ones sold in recent months do not reflect the tariff incidence, purely because they hit the US shores before the tariffs kicked in. Trump's repeated waivers and extensions have also helped matters.
The stock markets continue to get tailwinds from America's extraordinary artificial-intelligence boom, which has pushed up projected earnings for its biggest tech companies over the last 24 months. Tech has an overweight influence on the US markets. Markets also might be expecting Trump to chicken out — on the lines of the widely-used acronym TACO, or Trump Always Chickens Out — as the impact of tariffs becomes evident. The lack of a reaction so far might be emboldening him to push ahead. But it could get bad, and the downward spiral could happen really fast.
While key economic data offers a somewhat subjective picture, with inflation having so far defied the worst of economists' expectations even as the US consumer remains strong, there are clear signs of pockets of weakness in the labour market and a slowdown in growth. The red flags include the firing of Erika McEntarfer, the Commissioner of the Bureau of Labor Statistics (BLS) on August 1, after the agency said that non-farm payrolls — or new jobs outside of agriculture –— rose by just 73,000 in July, while the numbers for the previous two months were revised downwards by more than a quarter of a million to a mere 19,000 for May and 14,000 for June. The US President claimed the numbers were being 'rigged' to make him and his Republican party 'look bad'.
Even if a new BLS chief is appointed to make the data look good, there are fundamental flaws in Trump's worldview that could impact the American economy in the months to come. The stated aim of Trump's tariffs — reshoring manufacturing and creating jobs back in the US — is difficult to achieve given America's loss of competitiveness, especially in labour-intensive industries. Higher import costs will progressively feed into prices in the US; costlier goods will dent consumption, and with weaker demand job creation will taper off. These strains are likely to become more pronounced during the Fall-Winter/Christmas shopping season, potentially shaping voter sentiment in the run-up to the midterm elections.
Given that the Trump administration has significantly hiked tariffs on virtually all US trading partners, with some major economies such as the European Union, Japan and South Korea facing a 15 per cent tariff while others including Canada, Switzerland, Brazil and India facing much higher rates, upwards of 35 to 50 per cent, unless a deal is reached for each of the key trading partners, the average tariffs charged by the US on its imports would be somewhere in the 15-20 per cent range. In January, the effective average US tariff figure was 3 per cent. For the US, this entire exercise would be inflationary, even if importers or retailers were to bear part of the costs.
The effects of inflation are starting to show up in the most likely of areas, with reports of retail majors such as Costco and Walmart hiking prices of appliances, furniture, tools and children's items.
Also, while the Gross Domestic Product, or GDP, grew at a robust annual rate of 3 per cent in the second quarter of 2025, which was up from a half per cent contraction in the first quarter, the big driver was strong consumer spending, But much of that was on account of goods that were imported on a front-loaded basis. There is the possibility of a sharp slowdown going forward, and while a recession is not on the cards yet, a slowdown is looming.
Apart from tariffs, there are concerns around Trump's tax bill and how that will impact the US deficit. Some of this concern was reflected on August 6, when the 10-year American Treasury yield rose following a somewhat dismal $42 billion auction of new securities by the US Treasury Department. The benchmark 10-year note yield was up more than 2 basis points to 4.22 per cent, while the 30-year Treasury bond yield climbed more than 4 basis points to 4.813 per cent, according to Reuters data. One basis point equals one hundredth of a percentage point, and yields and prices move in opposite directions.
The US Federal Reserve, the country's central bank, has a dual mandate of ensuring price stability and maximum employment. Fed chief Jerome Powell, who is under fire from Trump for not cutting rates, is ironically faced with a two-sided risk now, a threat to both its goals. Inflation is set to rise while employment numbers are likely to taper off. The challenge for Powell is that while keeping its benchmark interest rate too high could keep inflation in check, it could also dent the already shaky job market.
The second half of 2025 is undoubtedly going to be more unpredictable than the first, and the impact of Trump's fickle tariff outlook could actually start showing up as business owners begin to make well educated decisions about how much they actually have to increase prices. Whereas once American shoppers were spoiled for choice, now firms that succeed in the post-Trump regime will do so not only because they are the most innovative or efficient, but because they are good at gaming the system or lobbying for sops. Fortunes will be spent on lobbying, and that makes it difficult to remove any of these tariffs even after a new administration takes office.
So, the high tariff US external outlook is likely to fester even beyond Trump.
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Economic Times
7 minutes ago
- Economic Times
Trump is aiming for Pakistan-style compliance from India, but his plan is not working
Synopsis Amidst rising tensions, the US-India trade relationship faces turbulence as Trump's administration imposes tariffs, allegedly to pressure India on geopolitical issues like Russian oil imports. India views these actions as an infringement on its sovereignty, resisting demands to compromise on agriculture, patent laws and military sourcing. India's refusal to play a compliant role, unlike Pakistan, frustrates Trump. "Trump wants a vessel like Pakistan. India refuses to behave like one." That blunt assessment from Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), captures the essence of the US-India trade saga: it's less about economics than geopolitics. While headlines focus on tariffs and trade deficits, the underlying story is about power, leverage and sovereignty. Speaking to Economic Times, Srivastava explains, "Washington expects compliance, and India is not yielding." Trump, who is set to meet Russian leader Vladimir Putin on Friday at Joint Base Elmendorf-Richardson in Alaska, has long framed tariffs as a tool to 'fix trade deficits,' but India's case suggests a different motive. On August 7, the US announced it would raise tariffs on Indian goods from 25% to 50%, citing Delhi's purchase of Russian oil. India called the move 'unfair' and 'unjustified,' with the new rate set to take effect on August 27. The White House framed the tariffs as a way to cut Russia's energy revenues and pressure Vladimir Putin toward a ceasefire. With this increase, India becomes the most heavily taxed US trading partner in Asia, joining Brazil which faces similar steep tariffs amid tense bilateral relations. The economic stakes for India are high. In 2024, India exported $87 billion worth of goods to the US. According to US Census Bureau data for May 2025, imports from India stood at $9.43 billion, while US exports to India were $3.82 billion, resulting in a US goods trade deficit, or an Indian surplus, of roughly $5.6 billion. If the 50% tariffs remain in place, nearly all of India's annual exports to the US could become commercially unviable. Meanwhile, the US continues to run a $45.7 billion goods trade deficit with India, yet these tariffs disproportionately affect Indian exports compared with goods from other Srivastava, the message is clear: 'Trade deficit is just for the namesake. It's about forcing countries to fall in line with a geopolitical agenda.' India imports roughly 20% of its GDP in goods, spanning petroleum, machinery and electronics, yet Washington appears less concerned with trade imbalances than with pressuring India to compromise on and dairy have emerged as key sticking points in India-US trade talks, which collapsed earlier this month. On August 7, Prime Minister Narendra Modi declared, 'India will never compromise on the well-being of its farmers, dairy producers and fishermen.' New Delhi has consistently resisted US pressure to open these sectors, arguing that doing so would threaten millions of small farmers. Historically, India has kept agriculture largely off the table in trade agreements to safeguard domestic to Srivastava, US demands extend far beyond tariffs: opening government procurement, diluting patent laws that could make medicines costlier, limiting future digital taxes, and shifting military sourcing to the US. 'Even if we open agri and dairy, no trade deal will happen with this. Not a trade issue. They want you to open your government procurement, dilute patent laws, commit to never charge digital tax in future, buy military from the US, the list is endless,' he adds, 'Trump imposed 50% tariffs on Brazil partly over politics and partly because Brazil asked Twitter to remove anti-Brazil content. Records show India generates even more such requests, so he could use that as an excuse too. He can conjure unlimited reasons to impose tariffs if he's unhappy. My sense is he doesn't want a partner in India, he wants a vassal. India refuses to play that role; it insists on an equal partnership. That's the basic problem.'The US approach to Russian oil imports is uneven. China, Russia's largest crude buyer, faces no comparable tariff threats, while India is under heavy pressure. 'Even if the US demanded zero imports from Russia, India's imports would fall anyway due to economic circumstances,' notes Srivastava. European and US bans on petroleum products derived from Russian crude are already reducing India's imports, independent of Washington's selective approach reflects a broader pattern in US trade policy. Brazil, for example, faced a 50% tariff despite running a surplus with the US, largely over political disagreements including its stance on Venezuela and former President Bolsonaro. Venezuela itself is under secondary sanctions for buyers of its oil, though some firms, like Chevron, have received exemptions. These cases suggest that political alignment often outweighs economic between Russia and the US has dropped roughly 90% since the Kremlin's full-scale invasion of Ukraine, though last year the US still imported $3 billion worth of Russian goods, according to the US Bureau of Economic Analysis and Census Bureau. Meanwhile, the European Union, a partner in sanctions against Russia, imported $41.9 billion (36 billion euros) of Russian goods in 2024, Eurostat data the US pressures India to cut Russian oil imports, market forces and global regulations are already reshaping trade flows. Europe and US bans on petroleum products ensure India's imports will decline regardless of Washington's actions. Srivastava cautions, however, that the US may find new reasons for tariffs, keeping India under continuous has built a buffer against such pressures. Exports constitute roughly 20% of GDP, compared with 90% for Vietnam, a country far more vulnerable to US-imposed shocks. 'Vietnam will suffer more. We will suffer, but we will absorb it properly. Country will bounce back. All we need to do is not to surrender,' Srivastava US consumers will also feel the impact of tariffs. About 90% of prescriptions in the US rely on generics imported from India. While the total trade value may be under $10 billion, disruption affects the majority of prescriptions, potentially raising prices significantly. Companies may eventually source alternatives over three to four months, but the immediate effect is inflationary.'Indian exports will suffer, but we need to consider whether it's better to endure this and use it to push delayed reforms, like diversifying exports, rather than falling into a bad deal. This isn't really about trade; it's about surrendering sovereignty,' Srivastava Srivastava, Trump's broader strategy is political theatre. 'Basically, he wanted to hit China. He couldn't, so he has to show his domestic voters that he is a big man, that a bully can show strength by hitting someone. He couldn't hit China, so let's hit India, that's the only thing.'With China, Trump launched a trade war over the large trade deficit, but Beijing hit back by restricting supplies of critical materials, he noted. 'India hasn't used those levers, which is why Washington expected Delhi to yield immediately.'India's refusal to play a compliant role, unlike Pakistan, frustrates Trump. 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'All we need to do is not enter into any relationship that costs us the medium or long term,' Srivastava takeaway is clear: Trump's tariffs are less about trade and more about leverage. Every tweet, every tariff threat, every demand is a political signal designed to demonstrate strength to domestic voters. 'Every day he abuses us on Twitter. That shows India has entered his mind,' Srivastava response emphasises sovereignty, resilience and strategic foresight. "Trade deal is not a trade deal. It's about bargaining for your sovereignty. And India is not bargaining."
Economic Times
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PPI inflation shock rocks Wall Street and Trump — big Fed rate cut dreams go up in smoke
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Q2: How did jobless claims affect market outlook in July? Falling jobless claims signaled slight labor market easing, influencing S&P 500 futures and Fed rate expectations. (You can now subscribe to our Economic Times WhatsApp channel) (Catch all the US News, UK News, Canada News, International Breaking News Events, and Latest News Updates on The Economic Times.) Download The Economic Times News App to get Daily International News Updates. NEXT STORY
The Hindu
7 minutes ago
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Six more Maoists from Chhattisgarh surrender before Telangana police in Kothagudem
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