Under the fluctuating tariff environment in the U.S., President Donald Trump stated last week that he would unilaterally propose tariff rates on U.S. trade partners’ reciprocal tariffs within the next one to two weeks. Compared to his earlier statement that the reciprocal tariff rates would be announced by July 9, this timeline has evidently been moved up. However, even if the U.S. announces the reciprocal tariff rates, the subsequent impact will depend on how other countries respond, which is still yet to be assessed. Based on the tariff policies that have been implemented since Trump’s inauguration, some insights can already be drawn.
So far, tariffs have caused price increases on certain goods (such as imported cars and toys with a 25% tariff), but they have not led to a broad increase in U.S. prices. The latest May Consumer Price Index (CPI) year-on-year increase was 2.4%, which shows a continued trend of stable prices.
According to data from the U.S. Treasury Department, the U.S. tariff revenue in April and May totaled $37.6 billion, with $22 billion of that in May, accounting for 6% of federal revenue for the month. This marked a historical monthly high, and it was a 270% increase compared to the same period last year. The revenue from these two months primarily came from the 10% tariff imposed globally on April 2 by Trump, along with a brief, more than a month-long 145% super-high tariff on China, as well as tariffs on steel, aluminum, and automobiles.
What is curious is that although the U.S. government collected more than $30 billion in tariffs over these two months, prices have not visibly reflected these costs. One possibility is that U.S. manufacturers imported a large quantity of goods before the tariffs were implemented, so they are still working through existing inventory without raising prices. Another possibility is that, until the reciprocal tariffs are finalized by July 9, importers are unwilling to increase prices abruptly in order to maintain market share. These factors may obscure the full impact on prices, which may become clearer in a few months. If the Federal Reserve delays rate cuts as a result, it would not be surprising.
However, whether or not the Federal Reserve will cut rates depends on its assessment of the inflation and recession risks. Since December of last year, even though Trump has repeatedly called for rate cuts, Chairman Jerome Powell has kept the federal funds rate between 4.25% and 4.5%, clearly indicating concerns about inflation risks, which is why he has refrained from lowering rates. But if inflation is not the biggest threat at present, economic recession risks will become the main consideration for rate cuts. From current data, tariffs have not yet shown their full impact on the U.S. economy.
In the first quarter of this year, the U.S. economy contracted by 0.2% year-on-year, primarily due to a surge in imports before the tariff decision, resulting in economic contraction. However, as tariffs gradually take effect and imports decrease, this will help improve the trade deficit and contribute to economic growth.
The U.S. trade deficit fell from $138.3 billion in March to $61.6 billion in April, a decrease of 55%, the largest drop in merchandise trade deficit since February 1992. The improvement in the trade deficit is also expected to contribute to economic growth in Q2. The Federal Reserve Bank of Atlanta’s model estimates that the U.S. GDP growth for Q2 2025 could reach 4.6%.
On June 10, the World Bank revised its U.S. 2025 economic growth forecast, lowering it from 2.3% to 1.4% (down from 2.8% last year). The World Bank also revised its global average growth forecast from 2.7% to 2.3%, predicting that Mexico will be most affected. However, its forecast for China’s growth remains unchanged, as the reduction in exports to the U.S. will be offset by increased exports to other regions.
Furthermore, a report released by the OECD on June 3 also downgraded the U.S. 2025 economic growth forecast from 2.2% to 1.6%, emphasizing that the U.S. will suffer from its own tariffs, policy uncertainty, reduced immigration, and retaliation tariffs from other regions. The OECD further predicts that U.S. prices will rise, estimating the year-on-year growth rate of Personal Consumption Expenditures (PCE) to be 3.9% by the end of the year (up from 2.1% in April). As a result, the OECD predicts that the Fed will have no room to cut interest rates this year.
However, both the World Bank and OECD forecasts are based on assumptions made in May concerning tariff rates, and they have not taken into account the rulings of the U.S. International Trade Court and the appellate courts on Trump’s tariffs. Thus, the full impact of the tariff war remains to be seen.