The White House is racing to finalize trade deals before the August 1 deadline, as tariffs begin to impact prices in the economy.
President Trump’s new “mutual” tariffs are scheduled to take effect on Friday, following their initial imposition in April. They were supposed to restart in early July but got delayed until now.
Trump stated there won’t be any further expansions.
“The first deadline for August is the first deadline for August,” he shared on his social media platform Wednesday. “It’s strong and not extended. It’s a big day for America!”
On the same day, Trump revealed a trade agreement with South Korea that would bring a 15% tariff on goods imported from there.
He also mentioned that India would face a 25% tariff but hinted there might still be an opportunity to negotiate a deal that day.
Additionally, Trump and Ursula von der Leyen from the European Commission announced a trade agreement that includes a 15% import duty on products from the EU.
Other recent deals were announced with Japan, the Philippines, Indonesia, and Vietnam. That same Wednesday, Brazil implemented a 40% tariff that goes into effect next week.
Negotiations with Canada, Mexico, and China are ongoing, with an August 12 deadline looming due to the new contract.
There’s growing pressure to finalize these contracts as new import taxes begin to affect prices for goods and services throughout the supply chain.
While businesses have been absorbing some of the tariffs so far, economists predict that consumers will increasingly bear the burden of rising costs.
This situation could significantly impact Trump politically, as his approval ratings have been slipping. Inflation and the economy are seen as pivotal issues heading into the 2024 election, particularly following a rise in labor activity throughout 2023.
The Federal Reserve’s inflation indicator for June was higher than expected. The Personal Consumption Expenditures Price Index showed a 2.6% annual increase, up from 2.3% in May.
Excluding more volatile food and energy prices, the index rose to an annual rate of 2.8%.
The data aligns with the June report indicating that consumer prices have increased by 2.7%, up from 2.4% previously.
Tariffs could be a significant factor driving price hikes, as shifts in power generation influence the overall economy, and many analysts expect this will hinder long-term growth.
The Bureau of Labor Statistics reported that the Employment Cost Index (ECI), which measures labor costs broadly, rose by 0.9% last quarter, similar to the previous quarter.
Wage growth has gradually decreased since 2022, with private sector wages increasing by 3.5% in June.
Bernard Jaros, chief economist at Oxford Economics, pointed out that the latest figures on wage growth suggest the labor market isn’t putting upward pressure on inflation.
He anticipates “further moderation in wage growth,” predicting it will decline to 3.3% by next year’s end.
An economist from LH Meyer described the June ECI as a “company,” although they noted it doesn’t imply the labor market is tightening significantly in the second quarter.
Forecasts for the July employment report are notably lower than the 147,000 jobs added in June.
Inflation in housing and services, a significant factor in overall prices, has also decreased after previously being elevated due to high interest rates.
Claudiatherm, chief economist at New Century Advisor and former Fed economist, remarked, “We’ve seen some real improvements in recent months in certain inflation metrics.” He noted that housing services are experiencing more gradual inflation while non-housing services significantly affect the Consumer Price Index (CPI).
The US Gross Domestic Product (GDP) contracted in the first quarter and rebounded in the second, but both measurements were influenced by trade discrepancies stemming from Trump’s trade policies.
In the first quarter, businesses reduced imports by 0.5%, while in the second quarter, they cut imports significantly, leading to a 3% economic growth.
The trend in GDP calculations, reflecting the last purchases in the second quarter, moved downward as it grew by only 1.2%.
“Economic activity growth has been moderated,” Federal Reserve Chairman Jerome Powell stated Wednesday. “GDP grew at a pace of 1.2% in the first half of the year, down from 2.5% last year.”
The International Monetary Fund forecasts the US economy will grow by 1.9% this year, a decline from 2.8% in 2024. Meanwhile, the World Bank, similar to the Fed, predicts a growth of 1.4%.
A UN economist noted earlier this month that the potential for increased tariffs in the US and broader trade disputes pose significant risks to economic growth.
