Tariffs May Be Pushing Inflation

This week, while another round of tariffs was announced by the White House, the inflationary effects of previous tariffs have begun to appear. 

An announcement of a 30% tariff on imports from the European Union has leaders in Europe evaluating their options.

Maroš Šefčovič, European Union Trade Commissioner: "Practically, it prohibits the trade. So if you're talking about 30% or 30% plus there will be a huge impact on trade. It will be almost impossible to continue the trading as we are used in a transatlantic relationship. And if you look at the impact this would have, so I have to say the transatlantic supply chains would be heavily affected on the both sides of Atlantic."

The EU is America’s largest business partner and the world’s wealthiest trading bloc. A full tariff war with the United States would force the economic bloc to rethink its export heavy economic strategy.

And those who work with U.S. farmers know the value of having options for producers and their product. 

Charles Baron/ Farmers Business Network: “US agriculture is one of the most important exporting industries for the United States. And you look across the access for whether it's in beef, whether it's in pork, soybeans, you know, we are and, you know, alfalfa, just throughout the system, throughout the United States, exports are a huge part of our market. So we absolutely need, you know, strong trading relationships, and strong market access.”

Coalition members referenced a pivot to encouraging trade within the Eurozone, and increasing trade with countries with friendlier trading policies.

The U.S. and EU have maintained a generally cooperative trading relationship since the Union was formed in 1993. The U.S. import tariff on goods from the Union averaged 1.47 percent, while the EU’s tariffs averaged 1.35 percent.

Analysts suspect that companies that import goods have absorbed as much of the tariff taxes as their balance sheets will support, and are now passing the tariff costs on to consumers. Under a 1962 law, the president can impose tariffs to counter a threat to national security or a trade imbalance. 

The Consumer Price Index rose .3% percent in June, bringing the year-on-year increase to 2.7% percent, an increase from the inflation number in May. Increases in food and energy led the rise.

With new tariffs scheduled for August 1st, the rising inflation numbers may keep the Federal Reserve from changing interest rates at their July meeting.

For Market to Market, I’m Peter Tubbs