U.S. tariffs may cool inflation for the rest of the global economy

As American consumers and the Federal Reserve continue to deal with the effects of President Donald Trump’s tariffs on inflation, the global picture looks somewhat different, with some countries actually seeing modest price relief. In the U.S., inflation hasn’t spiked as much as some feared, but it is still edging higher, complicating expectations for Fed rate cuts. The consumer price index (CPI) rose 2.7% year-over-year in July, slightly below forecasts, while core CPI quickened to 3.1% from 2.9%. Analysts at Capital Economics expect the tariff impact to build gradually over the rest of the year, posing more challenges for U.S. households.

Outside the U.S., however, the situation is less inflationary. Economists Simon MacAdam and Ariane Curtis of Capital Economics noted that most countries have not retaliated with tariffs on U.S. goods, and in some cases have even reduced barriers. For example, under a new trade deal with Indonesia, tariffs on nearly all U.S. imports were eliminated, while Washington imposed a 19% duty on Indonesian exports. This uneven pattern, combined with weaker global demand and the diversion of Chinese goods from U.S. markets into other regions, may actually ease price pressures abroad.

In contrast, American consumers are expected to feel more of the strain. Many U.S. companies have so far absorbed tariff costs by cutting into their profit margins, but analysts warn that can’t continue indefinitely. With trade agreements clarifying where tariffs will settle, retailers are likely to start passing on higher costs to consumers, which could keep inflation elevated. Meanwhile, China faces sharper consequences than most other economies, since U.S. tariffs on Beijing are steeper, increasing the risk of deeper deflationary pressures there.