Trade tariffs introduced by US President Donald Trump have entailed interesting developments in the global economy. According to economists, the initial impact of this tariff policy turned out to be more restrained than expected. This raises several questions: will the long-term economic consequences be just as limited and will the situation worsen? Time will tell.

The removal of most retaliatory tariffs between the US and China has greatly benefited market sentiment. Global stock markets rebounded sharply, in particular, the S&P 500 approached its February high. Meanwhile, the US dollar had a harder time—it has sunk by 7%. At the same time, short-term yields declined. On top of that, oil prices dropped by $10 per barrel, more than offsetting the tightening of financial conditions.

Experts at Capital Economics think that recent macroeconomic data points to the muted effects of the tariffs. Customs duties increased to $15.6 billion in April from the previous $8.2 billion. However, this amounts to just $187 billion in annual terms, far below the $380 billion estimated under an average tariff rate of 15%.

“It seems that companies, anticipating further tariff cuts from Trump or the exemption of more goods, have temporarily suspended imports. Instead, they are drawing down inventories,” Capital Economics believes.

Consumer price data also showed minimal pressure. The core CPI in the US inched up just 0.06% from a month ago. Meanwhile, falling prices for clothing, used cars, and groceries offset price increases in home appliances and electronics.

For the time being, many foreign automakers have avoided raising prices by relying on stockpiles. However, shortages may arise by summer if trade negotiations stall. Retail sales and industrial production also dipped slightly in April, consistent with a March pickup in activity. As a result, Capital Economics upgraded its Q2 2025 GDP growth forecast from 2.0% to 2.6%.

Against this backdrop, the long-term impact of Trump’s tariffs remains an open question. Capital Economics analysts believe the effects may show up over time. Currently, they expect core CPI inflation to peak below 4%, and overall inflation to remain below 3.5%. At the same time, fiscal stimulus could offset tariff revenues to maintain GDP growth at around 2% in the second half of 2025.