The White House is racing to finish trade deals ahead of its Aug. 1 deadline, just as prices in the economy are starting to take off from tariffs.
President Trump’s novel “reciprocal” tariffs will go back into effect Friday after first being imposed in April. They were set to resume in early July, but were pushed back to Friday.
Trump has said there will be no more extensions.
“The August first deadline is the August first deadline,” Trump posted on his social media website on Wednesday. “It stands strong, and will not be extended. A big day for America!”
Trump announced a deal with South Korea on Wednesday that would impose 15 percent tariffs on goods imported from the country.
He said that India would be hit with a 25-percent tariff but suggested later in the day that there is still time to make a deal.
Trump and European Commission president Ursula von der Leyen announced a trade agreement on Sunday with a 15-percent import tariff for EU products.
Other deals announced in recent days have been with Japan, the Philippines, Indonesia, and Vietnam. Trump issued an order on Wednesday slapping 40-percent tariffs on Brazil on Wednesday, which will take effect in a week.
Negotiations are continuing with Canada, Mexico and China, which has its own deadline of Aug. 12 for a new agreement.
The pressure is on to close the deals as the new import taxes are starting to make their way through value chains and into the sticker prices of goods and services.
While companies have been paying a portion of the total tariffs so far, economists expect that consumers will increasingly foot the bill for the cost increases.
That could have big political consequences for Trump, whose approval ratings have been falling. Inflation and the economy were the top issues in the 2024 election following the post-pandemic inflation, which sparked a surge in labor activity across the country in 2023.
The Federal Reserve’s preferred inflation gauge for June came in hotter than expected on Wednesday. The personal consumption expenditures price index popped to a 2.6 percent annual increase from 2.3 percent in May.
Removing the more volatile categories of energy and food, the index rose to a 2.8-percent annual increase.
The numbers align with the June readings of the consumer price increase, which jumped to a 2.7-percent increase from 2.4 percent in its previous reading.
Tariffs are likely the main driver of the price increases, since disinflationary forces are working in other parts of the economy and many forecasters are projecting slower long-term growth.
The Labor Department reported Thursday that its employment cost index (ECI) — a broad measure of labor costs — rose 0.9 percent in the last quarter, about the same pace as in recent quarters.
Wage growth has been slowly falling since 2022 and dipped down to 3.5-percent increase for private workers in June — a pace that’s consistent with the Fed’s 2-percent inflation target, which prices are now rising above.
“The latest reading on wage growth is a reminder that the labor market isn’t a source of upward pressure on inflation,” Bernard Yaros, lead economist of Oxford Economics, wrote on Thursday.
Yaros predicted “further moderation in wage growth,” expecting it to dip to 3.3 percent by the end of next year as fewer people quit their jobs.
Economists for LH Meyer called the June ECI “firm” but said it “doesn’t mean that the labor market began tightening significantly in the second quarter.”
Many forecasts for Friday’s July jobs report are significantly lower than the 147,000 jobs the economy added in June.
Housing and services inflation, which are big components of prices, have also been coming down after being held aloft by higher interest rates.
“We’ve seen some real improvement in recent months in some parts of inflation we’ve been waiting on,” Claudia Sahm, chief economist with New Century Advisors and a former Fed economist, told The Hill. “Housing services has really slowed, nonhousing services, which is a big piece of the CPI.”
While U.S. gross domestic product (GDP) contracted in the first quarter and roared back during the second, both of those readings were skewed by trade irregularities stemming from President Trump’s trade war.
In the first quarter, businesses front-loaded imports, leading to a 0.5-percent decline. In the second quarter, they dramatically reduced their imports, leading to a 3-percent expansion.
The trend line through those movements is likely a downward one, as second-quarter final purchases, which is a tighter measure of the GDP number, advanced by 1.2 percent.
“Growth of economic activity has moderated,” Federal Reserve Chair Jerome Powell said Wednesday. “GDP rose at a 1.2 percent pace in the first half of the year, down from 2.5 percent last year.”
The International Monetary Fund is projecting 1.9-percent growth for the U.S. economy this year, down from 2.8 percent in 2024. The World Bank is projecting 1.4-percent growth, the same as the Fed.
“The potential imposition of higher tariffs in the United States — and the risk of broader trade conflicts — pose significant downside risks,” United Nations economists wrote earlier this month.
