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Tariff Impact on U.S. Prices Muted as Firms Absorb Costs
17 Aug
Summary
- Tariff pass-through to consumer prices has been less than expected
- Firms are eating tariff costs, preserving profit margins
- Effective tariff rates lower than headline figures due to trade shifts
As of August 17, 2025, the impact of President Trump's trade war on U.S. consumer prices remains muted, according to the latest economic data. While the consumer price index has ticked higher, it has consistently come in below forecasts, and the latest reading on producer prices surprised to the upside.
Certain sectors heavily exposed to tariffs have seen spikes, but July data showed less upward price pressure on some goods and more pressure on some services. Economists believe one key reason for the muted inflation is that firms are absorbing the tariff costs at the expense of their profit margins, which are currently wide by historical standards.
Another factor is that the effective tariff rate importers are actually paying is far below the headline numbers, as demand has shifted away from countries with higher tariffs. Despite higher rates on Canada, for example, they don't apply to goods covered under the U.S.-Mexico-Canada trade agreement. Experts predict the weighted-average tariff rate will eventually settle around 15% as more products are hit with levies and loopholes close.
Overall, the evidence suggests the tariff impact on U.S. consumers has been less severe than initially feared, reducing concerns about upside risks to inflation and potentially allowing the Federal Reserve to pursue a series of rate cuts in the coming months.
