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Mint
4 hours ago
- Business
- Mint
American puzzle: Trump's tariffs have resulted in an inflation paradox
Next Story Mint Editorial Board Contrary to expectations, the US President's tariff hikes are yet to show up in America's cost-of-living data. Puzzling as this is, these are early days yet and trade shocks still risk setting off shudders of price instability. So far, what we have seen is a slowdown, but barely a blip on the price front. Gift this article Much like the dog that didn't bark in The Adventure of Silver Blaze by British crime writer and creator of Sherlock Holmes, Arthur Conan Doyle, one of the biggest puzzles after US President Donald Trump's 2 April edict of a 10% tariff on all imports is its remarkably subdued effect on inflation in America. Much like the dog that didn't bark in The Adventure of Silver Blaze by British crime writer and creator of Sherlock Holmes, Arthur Conan Doyle, one of the biggest puzzles after US President Donald Trump's 2 April edict of a 10% tariff on all imports is its remarkably subdued effect on inflation in America. At first, the general consensus—not limited to doomsayers—was that growth would fall and inflation rise as a direct outcome. Stagflation, or slower growth amid higher inflation, was the broad prognosis for the US economy and thence for the rest of the world's economies. So far, what we have seen instead is a slowdown for sure—US output contracted 0.5% in the first quarter of 2025—but barely a blip on the price front. How come? It calls for a closer look at the economic dynamics at play. True, Trump's more threatening country-specific 'reciprocal' tariffs that were to go into effect on 9 April were held off for 90 days, which have just ended, and the latest tariffs notified by letters sent to 14 countries will be enforced only from 1 August. In other words, we 'ain't seen nothin' yet," as Americans are given to say. Even so, the largely missing knock-on effect of a baseline tariff on prices in an economy that imports so much of what it guzzles is not easy to 'puzzle out,' a verb popularized by an earlier US president, Barack Obama. The US now has the highest average tariff since the 1930s, thanks to Trump's novel approach to trade. Add to that the dollar's big drop. The dollar index has fallen by close to 11% since the beginning of this year, making it the worst first-half for the US currency in almost half a century. Together, both should have pushed up retail prices. Yet, US data shows that its consumer price index rose just 0.1% month-on-month in May 2025. And though its annual inflation at 2.4% is above the Fed's 2% goal, a New York Federal Reserve survey released in early July sprang a surprise: earlier fears that Trump's tariffs would result in a price spike have all but disappeared. Inflation expectations are back to pre-tariff levels. One reason could be that importing companies had front-loaded their imports and piled up inventory in a bid to beat the tariff deadline. This is borne out by trade data as well. A second is that many companies chose to absorb the extra paid for imports and let margins take a hit, rather than raise retail price tags. A third is that demand driven lower by uncertainty softened the price impact, as seen in the global oil market. A fourth, one that finds favour with Fed Chair Jerome Powell, is that although tariffs do result in a one-off price jump—one that businesses appear to have 'eaten' for now—it's too early to say with any confidence whether this will steepen the angle at which prices rise over longer spans of time. Also Read: Dear Trump… Nobody can glower American interest rates down In his most recent testimony to the US Congress, Powell had said the 'outlook is for higher inflation over the year," a hint that he saw this as just a lull before the storm. The summer of heating prices he anticipated may not be showing up, but some of the factors behind today's calm could come apart, while others are unreliable. The US still risks price instability worse than what Trump might expect if his August tariffs kick in. We're in mid-summer now and the inflation dog is yet to bark. But that could be because it was lulled asleep by peculiar factors. The basic laws of economics haven't broken down. Yet. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Mint
4 hours ago
- Business
- Mint
Is China's deflation signalling stagnation?
Next Story Mint Editorial Board Producer prices dropped sharply in June; China could slip back into deflation at the retail level too. Amid trade turmoil, its economy faces a rough ride. Let's keep watch and look for opportunities. Beijing has used state money to support demand, but prices dropping beyond real estate, where a bubble popped some years ago, suggest slumps across sectors. Gift this article As countries turn inward, the damage that trade reversals can do to economies may have begun to show in China. Its data shows it has replaced exports to the US with shipments elsewhere to quite an extent lately, but its demand weakness within seems to be getting worse. As countries turn inward, the damage that trade reversals can do to economies may have begun to show in China. Its data shows it has replaced exports to the US with shipments elsewhere to quite an extent lately, but its demand weakness within seems to be getting worse. Also Read: Mint Quick Edit | Deflation is bad news for China's economy On Wednesday, the country reported a 3.6% drop in producer prices this June, marking the biggest fall in about two years. Consumer prices edged 0.1% higher last month, but it also meant China was a whisker away from slipping back into deflation at the retail level. Beijing has used state money to support demand, but prices dropping beyond real estate, where a bubble popped some years ago, suggest slumps across sectors. China is vulnerable to weak import demand globally and may find it hard to avert a slowdown as shipments lose pace amid tariff turbulence. Also Read: Stay vigilant: China's economic woes could spill over Some China-watchers see it headed the way of Japan, where deflation heralded stagnation in the 1990s. But the economic lessons of that era have been learnt and Beijing has greater strategic autonomy than Tokyo did. As China's rival, India must watch Beijing's moves even as it explores new opportunities for cooperative rivalry with it. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Mint
a day ago
- Business
- Mint
Brics isn't out to build a wall but serve the Global South
Next Story Mint Editorial Board In a fraught world, Trump's ire at the grouping can be traced to a purpose that's more relevant than ever. Brics is not aimed at keeping Cold War II blocs apart, but serving valid causes. The hunt for an alternative to the US dollar as a global currency is one such. The stronger the Brics, the greater its ability to persuade the US and Europe of a currency shift. Gift this article Many are inclined to view Brics as yet another talking shop in search of relevance and purpose. US President Donald Trump's threat to levy an additional import tariff of 10% on any nation that aligns itself with Brics's 'anti-American policies" puts things in perspective. Many are inclined to view Brics as yet another talking shop in search of relevance and purpose. US President Donald Trump's threat to levy an additional import tariff of 10% on any nation that aligns itself with Brics's 'anti-American policies" puts things in perspective. Brics must be doing something that hinders America's own arbitrary policies under Trump for it to draw his wrath. This could be taken as validation of the grouping's relevance in the context of trying to advance the interests of the Global South. Critics point to contradictions and conflicts among member states. Can the group survive, they ask, let alone champion causes that developing countries hold dear? This misses the crux of why nations form groups. For the first four-and-a-half decades of the United Nations Security Council, its five permanent members were split by ideology and geopolitics into two opposing camps; the Soviet Union and China were on one side, with the US, UK and France on the other. This divide was apparent in a failure of the two blocs to see eye-to-eye on vital matters. But that did not render the body useless. It served as a forum to contain global conflict, even if it failed all too often to prevent it. Also Read: The idea of a Brics currency is looking like a charade Brics's principal contribution would not be conflict resolution or geopolitical stability; it would be to give emerging markets greater wriggle room for economic growth and development by creating institutions for commercial interaction among themselves beyond the West's control. At the Brics summit held in Kazan last year, for example, a proposal arose to create Brics Clear, a digital framework for the settlement of cross-border securities transactions among developing countries, with assets held in depository accounts. That Western sanctions would not get in its way went without saying. Recall how the West froze Russian reserves held in Europe's multilateral trade clearance and depository system after Russia's invasion of Ukraine. The hope is that Brics Clear will be free of clamps. Meanwhile, the Brics-backed New Development Bank has been financing clean energy and other infrastructure projects worth billions of dollars. A reinsurance body would be helpful, as would a channel to move money across borders that parallels the Swift system held in the West's grip. For Trump, it is about the dollar. Or the very idea of an alternative global reserve currency and means of exchange. The case for one is clear: Any national currency playing this role carries the inherent risk of being abused by the nation that issues it. Big overspending at beautifully low cost is a subtle form of it, but at its most brazen, such a currency can be wielded as a weapon to extract behaviour change from others. Today, a shield from Uncle Sam's anger is in the self-interest of many countries. Brics might not be in a position yet to anchor a currency that can take on the dollar, but the group could promote an open debate on the subject and canvass support for an alternative. One option is a stablecoin pegged to the value of IMF's Special Drawing Rights, issued and run by the Bank for International Settlements, whose innovation hub in Hong Kong has test-run digital currency transfers on the borderless Ethereum blockchain. The stronger the Brics, the greater its ability to persuade the US and Europe of a currency shift. Brics isn't about building another wall to keep blocs apart for Cold War II, but about a less lopsided world. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Mint
2 days ago
- Business
- Mint
Opec's scramble is doing India a good turn
Next Story Mint Editorial Board The oil cartel plans to increase supply yet again in a lunge for market share as crude prices sag. This suits India fine. Abundant supply amid weak consumption in a tariff-rattled world economy has spelt a glut. Gift this article War clouds over Iran have cleared, even though US President Donald Trump's tariff policy has impacted global demand conditions. As it happens, both these factors favour crude oil consumers. War clouds over Iran have cleared, even though US President Donald Trump's tariff policy has impacted global demand conditions. As it happens, both these factors favour crude oil consumers. On Monday, Brent crude oil prices fell to $67.83 per barrel after the Organization of the Petroleum Exporting Countries (Opec) and its allies raised their production target by 548,000 barrels per day for August. Also Read: Counter-intuitive: Why Opec wants lower oil prices While Brent later rebounded, this extra supply would exceed the cartel's last increase of 411,000 barrels per day for the preceding three months (a major ramp-up). The cartel cited tight supply and healthy demand, although the global market's story is quite the opposite. Abundant supply amid weak consumption in a tariff-rattled world economy has spelt a glut. This suggests we can expect prices to stay range-bound in a comfort zone, even as Opec scrambles for market share now that it's clear it can't count on hardening prices to meet the revenue aspirations of its member countries. For importers such as India, this sounds just fine. With global trade patterns undergoing an upheaval, it's best if India's oil dependence doesn't complicate its balance of payments. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Mint
3 days ago
- Automotive
- Mint
Mint Quick Edit: Elon Musk's new ‘America Party' has spotted a gap in US politics
Next Story Mint Editorial Board There's space for a fiscally responsible voice and Musk's America Party seems keen to stir a rebellion on the right, but his business interests could get in the way of his political venture. Elon Musk himself can't be president of the US as he was not born there, but the country is arguably in need of a political voice for fiscal responsibility. Gift this article Billionaire Elon Musk is not about to exit US politics. Over the weekend, he launched the America Party to take on both the Republican and Democratic parties. Billionaire Elon Musk is not about to exit US politics. Over the weekend, he launched the America Party to take on both the Republican and Democratic parties. This is what Musk had threatened after his falling-out with Republican US President Donald Trump over the latter's One Big Beautiful Bill, which was passed by American lawmakers despite Musk's fierce objections to the huge overload of public debt it would result in. Also Read: X factor: The rise and fall of Elon Musk as a political figure This criticism is valid. Over time, it could lead to the US inflating its debt away, even practising financial repression. It's also true that Musk's own business interests are hurt by the legislation's withdrawal of clean-energy incentives. Tesla, his electric car company, has been doing poorly even with state support. Musk himself can't be president of the US as he was not born there, but the country is arguably in need of a political voice for fiscal responsibility. Also Read: Musk's woes: Tesla hit refresh on its EVs but it hasn't worked The billionaire seems keen to rally Republicans who may privately be alarmed by Trump's governance. Whether he is the ideal leader of such a rebellion on the right is another matter. The wealthy assuming political power is common in America, but Musk's agenda will be under close scrutiny. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
