The United States has postponed the introduction of President Donald Trump’s so-called “reciprocal” tariffs for a second time, pushing the deadline to August 1 and giving dozens of countries more time to negotiate trade agreements that could spare them from steep new levies.
The delay prolongs uncertainty for businesses but avoids an immediate escalation in trade tensions. Economists, long critical of tariffs say postponement is likely to be welcomed, even as concerns grow about the eventual economic fallout if the duties take effect.
Economists Warn of Delayed Pain
Although the administration has argued that earlier tariffs did not significantly lift inflation or disrupt the US economy, many analysts say the full impact will surface later this year.
Inflation remains “the dog that didn’t bark,” Treasury Secretary Scott Bessent has said. But economists insist that both inflation and employment will react with a lag.
Antonio Fatas, professor of economics at INSEAD, told CNN that open trade has long delivered net benefits for advanced economies. “The positives outweigh the negatives, even in rich countries,” he said.
Tariffs, effectively taxes on imports, typically raise costs for manufacturers and consumers. Roughly half of all US imports are intermediate goods used in American production, data from the OECD shows.
“Boeing aircraft and US automobiles, these are internationally sourced products,” said Dartmouth economist Doug Irwin on the EconTalk podcast. When imported components become more expensive, he added, producers often have no choice but to pass those costs to consumers.
A New York Fed study in 2019 found a “complete pass-through” of Trump’s 2018 tariffs onto domestic prices, leaving American households worse off.
Higher Prices, Lower Output
Economists expect Trump’s new tariff round to have similar effects. Federal Reserve Chair Jerome Powell warned in June that goods inflation is already edging higher and is likely to continue.
Research covering 151 countries from 1963 to 2014 suggests tariffs have “persistent adverse effects” on economic output. Analysts point to several causes: reduced specialization, higher input costs, and uncertainty that discourages business investment.
Hugh Gimber of JPMorgan Asset Management said tariffs force economies to pull labour into less efficient activities. “The labor could be better used elsewhere,” he noted.
Investment sentiment among US small firms has already weakened. An April survey by the National Federation of Independent Business said businesses were hesitant to spend amid policy unpredictability. “It’s hard to steer a ship in the fog,” the federation warned.
Job Losses and Retaliation Risks
Despite claims that tariffs protect jobs, studies suggest the opposite. Irwin notes that Trump’s 2018 steel tariffs produced a net loss in employment, as more Americans work in industries that use steel than in steelmaking itself.
A Federal Reserve Board study found that higher input costs and foreign retaliation in 2018–19 produced overall job losses in manufacturing, offsetting small gains in protected industries.
Retaliation remains a major concern. America’s trading partners responded almost immediately to Trump’s latest tariff announcements, though Washington later negotiated temporary truces with China and the EU.
Free Trade’s Benefits—And Its Costs
While economists broadly argue that open trade has lifted global living standards, they acknowledge trade can also displace workers in vulnerable communities—much like automation has reduced manufacturing jobs worldwide.
Gimber drew comparisons with the “just transition” concept in climate policy, arguing that retraining and skills programs are crucial for workers affected by trade shocks.
The pandemic also exposed risks of relying heavily on distant suppliers. But economists generally favour targeted industrial subsidies over broad tariffs to strengthen domestic manufacturing.
Perhaps the strongest case for free trade, analysts say, is geopolitical. Closer economic ties reduce the likelihood of conflict. As JPMorgan’s David Kelly wrote earlier this year, trading partners “have more to lose in any confrontation.”
This article was first published on CNN
