MORE PRICE HIKES AHEAD
There are already indicators of costs rising due to the tariffs. For example, the US producer worth index rose by 0.9 per cent in July 2025, the very best soar 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 stated, these are the one first-round worth results of the tariffs. Within the second spherical, rising imported enter prices will feed by way of manufacturing provide chains, reinforcing the inflationary affect of tariffs and eroding the competitiveness of US exports that use them.
With inflation comes an increase in the price of residing, which can result in calls for for larger 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 gas 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 scale back their reliance on the US market. There are indicators that Southeast Asia is already diversifying. There shall 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 motivation to “eat” the tariff will even lower. The eventual end result shall be larger costs and fewer selections for US shoppers.
One motive 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 often totally handed by way of in the long term. Proof is rising that that is beginning to occur with the latest Trump tariffs. This pattern is prone to proceed, leaving the US with rising inflation, inequality, and slowing progress, elevating the danger of stagflation.
It will seem that Southeast Asian exporters is not going to want to chop margins if most nations are passing by way 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 could fall if US progress slows. Whereas there could also be winners and losers in Southeast Asia, the US and the world shall 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.
