Why tariffs might stay higher even with a Trump reset

Published 22/07/2025, 12:34
© Reuters

Investing.com -- Tariffs are likely to remain elevated "even with a Trump put," according to Bank of America analysts.

In a research note, BofA said the latest tariff announcements “could raise the effective rate by around 5pp,” potentially pushing the overall rate to nearly 16%.

The bank added, “Even with a Trump put, tariffs may not get back all the way to the US-China deal lows from May.”

While BofA’s base case remains that tariffs will eventually settle around 10%, analysts cautioned that the “uncertainty and tariff shocks are extending in time,” and warned of “upside risks to our base case,” particularly if more sector-specific levies are introduced.

The macroeconomic consequences could be significant. According to BofA, a five percentage point increase in the effective tariff rate “would lower the fiscal deficit by about 50bp... and pose about 30bp of upside risk to inflation and downside risk to growth.” 

The bank sees this environment increasing the likelihood of stagflationary conditions extending into 2026.

As a result, BofA reaffirmed its out-of-consensus forecast that the Federal Reserve will not cut rates this year. 

“It becomes more likely that the Fed will be frozen in place,” the analysts wrote.

Meanwhile, BofA noted its tariff estimates are closely tracking official collections. In May, duties collected on Chinese imports reached nearly 46%, higher than BofA’s 38% estimate. 

However, collections from Canada and Mexico were below expectations, even though BofA’s projections for those countries were already “at the lower end.”

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