That’s what makes recent commentary from Federal Reserve official Austan Goolsbee so alarming, as it points to a tectonic change in the U.S.-China trade landscape. For one, he argues that the level of tariff reduction between the two countries is insufficient to cause a stagflationary situation. This marks a key change from any historic tariff playbook. Businesses are still trying to make sense of changing tariffs and trade policies coming out of the Trump White House. This problem has severely altered hiring and investment intentions in almost every industry sector.
Goolsbee’s remarks underscore a crucial economic reality: while the current tariffs remain three to five times higher than pre-trade war levels, their recent adjustments may create a slightly less adverse economic environment. The Federal Reserve looks to be in a very cautious mode with changing interest rates. In addition, it is monitoring the impact of changing trade realities.
The uncertain state of tariffs has kept many sectors in limbo. This makes companies loath to fully commit to new hiring initiatives. They avoid investment projects as trade policies continue to be unpredictable. This reticence is likely holding back economic growth. In an increasingly unpredictable landscape, businesses will opt for prudence over dynamism.
The tariffs recently slapped on imports from China have added another twist to that economic ballgame. This decrease in tariffs indicates that the U.S.-China trade war could be calming down. Even at these current levels, there’s still a stagflationary weight being put on the economy. Stagflation—stagnant economic growth coupled with markedly high inflation—truly is the worst nightmare for policymakers and business leaders.
As the Federal Reserve has announced, they too will remain in a wait-and-see stance on interest rates. This decision reflects their understanding that we cannot have thriving economic growth without tackling inflation concerns. Among the issues discussed by Goolsbee was the geopolitical shift in trade arrangements. So, it’s crucial that we reconsider any monetary policy as more information emerges on tariffs and their broader economic impacts.
As companies continue to figure out this ever-changing marketplace, many will find themselves pivoting their business strategies to fit the new tariff landscape. Other industries are likely to shift to more regional – if not domestic – production to reduce exposure to high tariffs on inputs. Others may seek to diversify their supply chains, sourcing materials from countries less affected by tariffs or investing in domestic alternatives.
This business uncertainty caused by tariffs has repercussions for consumers. Tariffs almost always result in higher prices for less-protected domestic goods and serve as one inflationary factor that hurts everyday consumers’ bottom lines. As consumers face rising costs, their purchasing power may diminish, further complicating the economic outlook.