Barclays is warning that the economic impact of U.S. tariffs could become significantly more pronounced as existing trade measures continue to ripple through the economy and new ones are introduced.
In a research note titled Mind the tariff gap, analysts at the bank pointed out that while the average effective tariff rate stood at 10% in June, more than half of all imports were still entering the country without duties.
“The real surprise in the U.S. economy’s resilience lies not in its reaction to tariffs but that the rise in the effective tariff rate has been more modest than commonly thought,” the note stated.
So far, Barclays estimates that tariffs have subtracted about 0.4% from gross domestic product. However, they caution that the overall toll could rise, projecting “an additional hit of c.1% due to further increases in tariffs and the delayed effects of past ones.”
Barclays anticipates that tariffs will lift the overall price level by around 0.8%, noting that “at least three-quarters of that impact” has yet to be felt.
According to the bank, the increase in effective tariffs through June likely represents “only about half of the eventual total hike.” They pointed to several factors that could drive the remaining impact: recently announced retaliatory tariffs, upcoming sector-specific duties, the potential end of certain exemptions, and unstable trade rerouting trends.
“Whether the electronics exemption remains in place will be key to watch,” analysts added.
Using detailed trade data, Barclays attributed the limited inflationary impact so far to a shift in sourcing away from China and to carve-outs like the U.S.-Mexico-Canada Agreement. While price pass-through effects up to June were “slightly more muted than implied by models,” the bank expects inflationary pressures to intensify as the effects continue to filter through.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.