MORE PRICE HIKES AHEAD
There are already indicators of costs rising due to the tariffs. As an illustration, the US producer worth index rose by 0.9 per cent in July 2025, the very best bounce in additional than three years. With the tariff pause ending in August 2025 (apart from China) and inventories stockpiled previous to the tariffs operating out, extra worth will increase are seemingly. Different oblique results will add to inflationary pressures over time, as costs of domestically produced substitutes rise in unison with the imports they compete with.
That mentioned, these are the one first-round worth results of the tariffs. Within the second spherical, rising imported enter prices will feed by means of manufacturing provide chains, reinforcing the inflationary influence of tariffs and eroding the competitiveness of US exports that use them.
With inflation comes an increase in the price of dwelling, which is able to result in calls for for greater nominal wages to retain their actual worth. This can precipitate a wage-price spiral. If this results in an increase in inflationary expectations on the macro degree, it might gasoline a vicious cycle that threatens runaway inflation. Financial tightening that dampens financial progress could also be required to comprise inflation.
Over time, the seemingly response from commerce companions is to cut back their reliance on the US market. There are indicators that Southeast Asia is already diversifying. There might be adjustment prices given the significance of the US market to Southeast Asia, however these prices will diminish over time. As competitors to produce the US market diminishes, the inducement to “eat” the tariff will even lower. The eventual end result might be greater costs and fewer decisions for US customers.
One purpose why Trump loves tariffs is the assumption that exporters will “eat” them by decreasing costs to take care of competitiveness on the planet’s largest shopper market.
Fairly on the contrary, the worldwide proof means that tariffs are normally absolutely handed by means of in the long term. Proof is rising that that is beginning to occur with the latest Trump tariffs. This development is more likely to proceed, leaving the US with rising inflation, inequality, and slowing progress, elevating the chance of stagflation.
It will seem that Southeast Asian exporters is not going to want to chop margins if most international locations are passing by means of the tariffs. Southeast Asia’s manufacturing provide chains stay China-centred and are so complicated that shifting manufacturing to the US due to these tariffs is unlikely to be straightforward or worthwhile. Whereas they could retain their profitability, export volumes might fall if US progress slows. Whereas there could also be winners and losers in Southeast Asia, the US and the world might be worse off due to these tariffs.
Jayant Menon is a Visiting Senior Fellow within the Regional Financial Research Programme on the ISEAS – Yusof Ishak Institute. This commentary first appeared on the Institute’s weblog, Fulcrum.
