US Economy: Examining the Impact of Tariffs

■ The negative effects of US tariff policies on the domestic economy, prices, and employment are still limited to certain areas.  
■ The negative impacts on corporate profit margins and strict immigration policies are expected to grow after summer. 
 
    In the second half of this year, the US economy is expected to slow down. This is because the initial surge in demand from tariff hikes has faded, tariff-related inflation has risen again, and signs of a weakening labor market are emerging. However, based on the industrial output and consumer price index (CPI) data released this week for June, these changes are still quite mild. Manufacturing output in June increased by 0.1% month-on-month, beating market expectations. Since early this year, manufacturing output has reversed its decline from the end of last year and remains high, signaling ongoing demand-driven growth. Additionally, the core CPI (excluding food and energy) rose 2.9% from last year and 0.2% from the previous month. Although the growth rate has picked up slightly, it is still below expectations. The main reason the core CPI missed forecasts was a decline in automobile and travel-related service prices. Nevertheless, as companies work through accumulated inventory, upward price pressures from tariffs could rise to protect profit margins. This has led to continued price increases for import-dependent goods, such as home electronics, furniture, and entertainment items, indicating that tariffs are gradually passing costs on to consumers. 
 
    The labor market's weakness remains mild. Although initial unemployment benefit claims have increased, the trend has recently slowed. Companies have not yet had widespread layoffs but are more cautious, reducing active recruiting. However, upcoming actions such as the US government's large-scale layoffs and immigration policies are likely to significantly impact the labor market going forward. The Supreme Court lifted restrictions on federal layoffs on August 8, opening the door for major government workforce cuts, which may show up in August employment data. Meanwhile, the previous Biden administration's large immigration programs are being phased out. The ending of humanitarian admission permits (CHBNV) and temporary protected status (TPS) for migrants from Cuba, Haiti, Nicaragua, and Venezuela has caused nearly 900,000 people to lose their US residency, with potential for future increases. This will directly impact labor supply in sectors like construction, hospitality, transportation, and manufacturing, and could harm consumer demand and business investment. A preliminary estimate from the Federal Reserve Bank of Dallas on the 11th suggests that immigration restrictions could lower US economic growth by 0.75 to 1 percentage point. Therefore, vigilance is necessary for a possible rapid deterioration of employment and economic conditions in the second half of this year. 
 
    President Trump's comments about removing Federal Reserve (FRB) Chair Powell caused sharp fluctuations in financial markets. However, this pressure is unlikely to influence the Fed's policy decisions, which will rely mainly on upcoming economic data. Although it's too early to tell at the July Federal Open Market Committee (FOMC) meeting, significant changes in economic data are expected by the September FOMC meeting, making it important to keep an eye on these developments.