As of January 2023, the United States has officially put an end to this de minimis exemption on low-value goods. This decision would bring unnecessary inflationary pressures to bear on the economy. The decision makes sense at a time of near historic economic performance. From that perspective, in the second quarter of 2023, US Gross Domestic Product (GDP) boomed, boasting a spectacular annualized growth rate of 3.3%. Inflation-adjusted sales, or real sales, are up considerably as well—real sales increased by 6.8%. As good as those signs are, core inflation is still uncomfortably high at 2%—inspiring fears that inflation may be heading the wrong way.
The US government removed this de minimis exemption. The amendment focuses on low-value imports, making sure these now pay the tariffs and taxes they owe in order to improve tax compliance and generate more revenue. In response, analysts are sounding the alarm over this proposed policy change. They argue it might only end up increasing costs for consumers, particularly in sectors that rely on low-cost imports. As businesses adjust to the new tariff structure, consumers may face higher costs, potentially exacerbating inflationary pressures already present in the economy.
At the same time, energy stocks have been on a tear as investors celebrate the GDP numbers. General optimism with respect to the projected growth rate has lifted spirits across energy markets. This boost of confidence may go a long way to soothing some of the inflationary worries. Earning investors Dividend-paying stocks are becoming increasingly popular with investors. They provide a hedge against escalating costs during a time when we are seeing major inflationary pressures on the horizon.
As the US continues to navigate a complex inflationary landscape, all eyes now turn to Europe, where August inflation data was eagerly awaited. The European market wrestles with its own set of problems. Political instability in France had already done further damage to euro sentiment. Ongoing negotiations over a US-EU free trade agreement include the possibility of cutting car tariffs, currently set at 27.5%, to 15%. These changes could be a sign of easing trade disputes. They might provide a much-needed break to beleaguered consumers on both sides of the Atlantic.
All of these complexities aside, the fundamental economic indicators in the US tell a story of resilience. With resilient GDP growth and increasing real sales, it can be interpreted that consumer demand is still holding strong. Inflationary pressures and federal government industrial policy are now inextricably bound together. We need to keep a close eye on this interaction especially as the nation inches toward economic recovery.