US Economy: The Outlook for Tariff Policy Is Becoming More Confused
2025-06-16
■ Although the US and China have reached an agreement on easing export controls, tariff negotiations remain opaque.
■ The impact of tariffs on inflation is still limited at present, but it is expected to rise in the summer. The Federal Reserve (FRB) will maintain a wait-and-see attitude in the short term.
The US government's tariff and trade policies have become increasingly chaotic. During the US-China ministerial talks held on June 9-10, the two sides reached an agreement to relax export controls. The United States has eased its traditional export restrictions on China, which can be viewed as a concession to China's previous forced restrictions on rare earth exports to the United States. Although the specifics of the agreement have not yet been disclosed and still require approval from the leaders of both countries, media reports indicate that China will resume rare earth exports to the United States under a "six-month deadline." Given that rare earth controls are a powerful negotiating tool for China, it is unlikely that China will concede easily, suggesting that deep-seated contradictions between the United States and China will persist. Furthermore, the United States' negotiations with other trading partners remain ambiguous. On June 11, U.S. Treasury Secretary Bessent stated that "for countries that negotiate in good faith, we will consider extending the tariff suspension period that expires in early July," whereas President Trump mentioned that "the tariff rate will be set unilaterally in about one and a half to two weeks in the future and will be notified to trading partners."
Although the U.S. is anticipated to maintain the current 30% tariff level on Chinese goods following this U.S.-China meeting, the actual average tariff level has increased by 1 percentage point to over 14% due to the U.S. raising tariffs on steel and aluminum from 25% to 50% on June 4. Should tariffs on semiconductors and pharmaceuticals, currently under investigation, also rise, they may approach around 20% before the U.S.-China agreement on May 12. This situation has raised market concerns about an economic downturn and rising prices.
However, the impact of tariffs on inflation has not been clearly evident. The consumer price index (CPI, with core CPI excluding food and energy) in May rose by 2.8% year-on-year and 0.1% month-on-month, both figures lower than market expectations. Even among goods categories that may be susceptible to tariffs, price changes have varied: some daily necessities have experienced faster price increases, while automobile and apparel prices have seen declines. The increase in the producer price index (PPI) in May (up 0.1% month-on-month) also continued to slow. Nonetheless, in the May Purchasing Managers' Index (PMI), both input and sales price indices reached their highest levels since the second half of 2022, and business survey results suggest that the cost increases imposed by tariffs have gradually been passed on to consumers. This trend is likely to persist throughout the summer, leading to inflation acceleration and a reduction in personal consumption.
Despite the deceleration in CPI growth and the president's renewed call for a rate cut, the Federal Reserve (FRB) is expected to maintain a wait-and-see approach. This expectation is supported by recent comments from senior Fed officials. Board member Cook and others noted that uncertainty still exists regarding the impact of domestic inflation caused by the tariff increase; Board member Waller stated that as long as market-based long-term inflation expectations remain stable, policy implications should continue to be assessed. It is anticipated that interest rates will remain unchanged in the short term, including during the Federal Open Market Committee (FOMC) meeting on June 17-18.
■ The impact of tariffs on inflation is still limited at present, but it is expected to rise in the summer. The Federal Reserve (FRB) will maintain a wait-and-see attitude in the short term.
The US government's tariff and trade policies have become increasingly chaotic. During the US-China ministerial talks held on June 9-10, the two sides reached an agreement to relax export controls. The United States has eased its traditional export restrictions on China, which can be viewed as a concession to China's previous forced restrictions on rare earth exports to the United States. Although the specifics of the agreement have not yet been disclosed and still require approval from the leaders of both countries, media reports indicate that China will resume rare earth exports to the United States under a "six-month deadline." Given that rare earth controls are a powerful negotiating tool for China, it is unlikely that China will concede easily, suggesting that deep-seated contradictions between the United States and China will persist. Furthermore, the United States' negotiations with other trading partners remain ambiguous. On June 11, U.S. Treasury Secretary Bessent stated that "for countries that negotiate in good faith, we will consider extending the tariff suspension period that expires in early July," whereas President Trump mentioned that "the tariff rate will be set unilaterally in about one and a half to two weeks in the future and will be notified to trading partners."
Although the U.S. is anticipated to maintain the current 30% tariff level on Chinese goods following this U.S.-China meeting, the actual average tariff level has increased by 1 percentage point to over 14% due to the U.S. raising tariffs on steel and aluminum from 25% to 50% on June 4. Should tariffs on semiconductors and pharmaceuticals, currently under investigation, also rise, they may approach around 20% before the U.S.-China agreement on May 12. This situation has raised market concerns about an economic downturn and rising prices.
However, the impact of tariffs on inflation has not been clearly evident. The consumer price index (CPI, with core CPI excluding food and energy) in May rose by 2.8% year-on-year and 0.1% month-on-month, both figures lower than market expectations. Even among goods categories that may be susceptible to tariffs, price changes have varied: some daily necessities have experienced faster price increases, while automobile and apparel prices have seen declines. The increase in the producer price index (PPI) in May (up 0.1% month-on-month) also continued to slow. Nonetheless, in the May Purchasing Managers' Index (PMI), both input and sales price indices reached their highest levels since the second half of 2022, and business survey results suggest that the cost increases imposed by tariffs have gradually been passed on to consumers. This trend is likely to persist throughout the summer, leading to inflation acceleration and a reduction in personal consumption.
Despite the deceleration in CPI growth and the president's renewed call for a rate cut, the Federal Reserve (FRB) is expected to maintain a wait-and-see approach. This expectation is supported by recent comments from senior Fed officials. Board member Cook and others noted that uncertainty still exists regarding the impact of domestic inflation caused by the tariff increase; Board member Waller stated that as long as market-based long-term inflation expectations remain stable, policy implications should continue to be assessed. It is anticipated that interest rates will remain unchanged in the short term, including during the Federal Open Market Committee (FOMC) meeting on June 17-18.