The US economy in 2025 continues to show resilience despite the widespread tariff increases imposed under President Donald Trump. Nearly six months after the tariff upheaval, key economic indicators reveal a complex picture. While stock markets have gained and inflation remains moderate, underlying weaknesses suggest a cautious outlook ahead.
Current Economic Indicators
The S&P 500 index is approximately 10 per cent higher than mid-2024 levels. Inflation, measured by the Consumer Price Index (CPI), rose 0.2 per cent in July 2025 on a seasonally adjusted basis, with a year-on-year increase of 2.7 per cent. This figure slightly exceeds the Federal Reserve’s 2 per cent target but remains below alarm levels. The US dollar has strengthened recently after a period of decline. These trends indicate that immediate tariff effects on prices and markets are muted.
Reasons for Muted Tariff Impact
Three main factors explain the subdued tariff impact. First, the economy inherited by Trump was already growing steadily at over 2 per cent with near full employment and low inflation. Second, importers front-loaded shipments before tariffs took effect, delaying price rises on retail shelves. Third, repeated tariff waivers and extensions have softened the immediate shock. Additionally, the booming artificial intelligence sector has buoyed stock market earnings, especially for tech companies that dominate US indices.
Emerging Economic Concerns
Despite positive headline data, warning signs are emerging. Labour market strength has weakened, with July 2025 non-farm payroll growth at just 73,000 jobs. Previous months’ job figures were revised downward . This slowdown in job creation raises concerns about future consumer spending. The firing of the Bureau of Labor Statistics Commissioner after the release of weak employment data marks political tensions surrounding economic reporting.
Long-Term Tariff Effects
Trump’s goal of reshoring manufacturing faces challenges due to America’s loss of competitiveness in labour-intensive sectors. Higher import costs are expected to increase consumer prices over time, which may reduce consumption and slow job growth. Tariffs on major trading partners range from 15 to 50 per cent, raising the average US tariff from 3 per cent to roughly 15-20 per cent. This tariff regime is likely to sustain inflationary pressures and complicate trade relations.
Retail and Consumer Impact
Retail giants like Costco and Walmart have begun raising prices on various goods, signalling the start of tariff-driven inflation in consumer markets. Although GDP grew at 3 per cent in Q2 2025, much of this was due to front-loaded imports. The coming months could see a sharper economic slowdown, especially as tariff costs feed into prices during the critical holiday shopping season.
Fiscal and Monetary Challenges
The US Treasury’s recent $42 billion auction of securities was lacklustre, pushing up yields on 10- and 30-year Treasury bonds. Higher yields increase government borrowing costs, adding pressure on the US deficit. Federal Reserve Chair Jerome Powell faces a balancing act – raising interest rates to control inflation could worsen employment, while easing rates risks higher inflation. This dual risk complicates monetary policy in a tariff-inflation environment.
Future Outlook
The second half of 2025 is expected to be more volatile as businesses adjust pricing strategies amid persistent tariffs. Success in this new era depends on innovation, efficiency, and political influence through lobbying. Tariffs are likely to remain entrenched beyond the Trump administration, shaping US trade and economic policy for years to come.
Questions for UPSC:
- Discuss in the light of recent US tariff policies, how protectionism impacts global trade and economic growth.
- Critically examine the role of central banks in managing inflation and employment during periods of economic uncertainty.
- Explain the phenomenon of inflation and its effects on consumer behaviour and economic stability with suitable examples.
- With suitable examples, discuss how political decisions influence economic data reporting and public perception.
