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Investing.com - The impact on the U.S. economy from President Donald Trump aggressive tariffs has been limited so far, but is expected to gradually build over time, according to analysts at Capital Economics.
Observers have long argued that Trump’s elevated levies will push prices higher and weigh on growth, although data this week suggested that the inflationary pressures in the U.S. remain muted.
Still, concerns remain that the full effect of the duties has yet to be felt. In a note, the Capital Economics analysts led by Simon MacAdam predicted that the levies will have a growing -- and upward -- influence on the pace of price gains in "the months ahead."
"So far, there has been very little pass-through to consumer prices, but this can’t last," the analysts wrote, referring to a potential move by some companies to transfer expenses incurred from the tariffs on to customers.
Some economists have suggested that the relatively tepid pace of inflation in July was partly due to firms still whittling down inventories that were expanded by a rush of orders prior to Trump’s "reciprocal" tariff announcement in early April. Others have argued that businesses may have also chosen to eat more of the costs of the tariffs in a bid to protect market share.
"While U.S. retailers seem to have been very willing to absorb the initial hit of tariffs via lower margins, this is not sustainable," the Capital Economics analysts said. "With many trade deals agreed, there is now greater certainty about where tariffs will end up, which should allow retailers to finally raise their prices."
They estimated that the U.S. tariff rate now stands at 17% following the implementation of Trump’s heightened "reciprocal" trade taxes earlier this month, adding that the figure could climb further should the White House follow through on threats to slap levies on imports of semiconductors and pharmaceuticals.
These tariffs, coupled with an ongoing White House crackdown on immigration, are anticipated by Capital Economics to keep core inflation -- an underlying gauge stripping out volatile items like food and fuel -- above 3% "well into 2026."