Implementing new tariffs by the US government is expected to cause inflation and slow economic growth, with the uncertainty of the final tariff framework further aggravating consumer and business sentiments.

The United States’ recent announcement of increased tariffs on trade partners has sparked concerns over the economic impact. According to Deloitte’s Economics Insider report for April 2025, these tariffs and the uncertainties surrounding them are expected to fuel inflation and dampen growth.

The tariffs, which range from 10% to 125% on goods from various countries including China, Canada, and Mexico, as well as product-specific tariffs, are set to push the average US tariff rate to levels unseen since the early 20th century. In response, China has announced a retaliatory 84% tariff hike on US goods.

The immediate economic impact of these tariffs is expected to be an increase in inflation without a corresponding rise in domestic production. This could potentially slow down the pace of rate cuts by the Federal Reserve, even if the inflation is transitory. Furthermore, consumers anticipating a rise in inflation may frontload their spending in 2025. However, the impact of rising prices on purchasing power is likely to slow consumer spending growth in 2026.

The lack of clarity on the final tariff framework is contributing to an atmosphere of uncertainty, affecting consumer and business sentiment. Key equity indices have declined, and the US dollar has weakened since February 2025.

On the inflation front, tariffs are essentially taxes paid by importers, some of which will likely be passed on to consumers. This will increase the cost of final products in the value chain. Worries about tariffs have already pushed inflation expectations upward, with the University of Michigan’s one-year-ahead inflation figure hitting a 28-month high of 4.9% in March.

Consumer spending growth is also expected to slow due to the tariff hikes. As tariffs rise, consumers will anticipate higher prices for goods and frontload some spending. However, as inflation erodes their purchasing power, consumers will likely reduce their spending, leading to lower spending growth in 2026.

The reshoring of production to the United States, a potential consequence of the tariffs, will have its own set of issues. While this may bring some manufacturing back to the US, the economic benefits will take time to materialize and will increase overall production costs.

Uncertainty over the final structure of tariffs and wider policy changes is another significant concern. Since the first tariffs were announced, there have been extensions and exemptions, adding to the confusion. This uncertainty is weighing on consumers and businesses, with consumer sentiment falling to a 28-month low in March.

Financial markets are also feeling the strain, with major indices like the S&P 500 and the NASDAQ considerably down since their peak in mid-February. Many businesses, particularly manufacturers, are finding it hard to make investment decisions due to the lack of clarity about the final tariff structure.

Discover more at Deloitte’s Economics Insider report for April 2025.