Before and after Donald Trump's second election as the U.S. president, there was a prevailing narrative of inflation panic surrounding his signature tariff policies. Economists in the U.S. and around the world generally feared that high tariffs would raise the prices of imported goods, which would, in turn, be passed on to consumers, ultimately causing runaway inflation. As a result, many are closely watching U.S. inflation, waiting for the inflation indicator, the consumer price index (CPI), to react, in order to assess the outcome of Trump's tariff war. The problem is, economists would be bound to be disappointed because more than four months have passed since Trump announced his tariff war policy against countries like China, yet, contrary to expectations, the response in inflation indicators has been far from significant.

According to the latest data from the U.S. Department of Labor, the overall CPI in the U.S. increased by 2.4% year-on-year in May, with a month-on-month increase of only 0.1%. This was even lower than the 0.2% month-on-month increase in April and significantly below market expectations, whereas the forecast posited a year-on-year increase of 2.5% and a month-on-month increase of 0.2%. Excluding food and energy, the core CPI rose by 2.8% year-on-year and by 0.1% month-on-month, also lower than market expectations, where the forecast was a year-on-year increase of 2.9% and a month-on-month increase of 0.3%. The year-on-year growth rates of both the CPI and core CPI are the lowest since the beginning of the Biden administration in early 2021.

The CPI is often regarded as the "gold standard" for reflecting inflation, and naturally, it has become the "primary indicator" used by markets to measure the impact of tariff policies. From the perspective of CPI data alone, there has been no significant surge in inflation in the U.S. driven by tariff policies. In fact, inflation has somewhat eased overall, which stands in stark contrast to the panic that initially accompanied the announcement of these tariff policies. In response to this phenomenon, there have been two prevailing opinions in the market: one camp believes that the effects of the tariff policies are lagging and still need time to fully manifest in the CPI data; the other camp has already acknowledged that the negative impact of the tariff policies on the U.S. has been exaggerated, with the former view being the more dominant one.

According to various interviews with economists from media outlets like CNBC and Reuters, experts generally attribute the delayed impact of tariff policies on prices to several key factors. First, many companies had stocked up on inventory by rushing to export and import goods before the tariff policies were implemented, and they are still in the process of depleting these inventories, which means price levels have yet to increase significantly. Second, the transmission of supply chain costs is not immediate; from imported goods to final consumer products, the cost is passed through multiple stages, including production, wholesale, and retail. Additionally, many businesses are reluctant to lose market share due to price hikes, so they prefer to absorb the increased costs from tariffs temporarily rather than immediately passing these costs onto consumers.

It is important to note that both of these viewpoints fall into the trap of habitual thinking, which is to constantly use the overall U.S. inflation data (CPI) as a measure of the impact of the tariff war.

Specifically, the structure of U.S. consumer spending means that the impact of tariffs on overall prices is greatly diluted. As a result, the overall price level is, in fact, not a true reflection of the impact of the tariff war. Take May’s data as an example; in the CPI basket, housing accounts for about 33%, with a month-on-month increase of 0.3% and a year-on-year increase of 3.9%, making it the only major component driving overall inflation. Food accounts for around 13.5%, with a month-on-month increase of 0.3%; energy accounts for about 7.5%, with a significant month-on-month decrease of 1.0% and a year-on-year decline of 3.5%, while gasoline prices dropped 2.6% month-on-month, effectively easing the burden on household spending. The direct impact of goods that are heavily reliant on imports only accounts for 10% to 15%, and the U.S. CPI basket consists of as many as 80,000 items, making the dilution effect very apparent.

In the U.S., service-based consumption, such as healthcare, education, dining, and entertainment, accounts for more than 60% of total consumer spending. The imported goods affected by the tariff war are primarily non-essential items like electronics and clothing. These products have a relatively low weight in the CPI basket. When their prices rise due to tariffs, consumers often choose to reduce spending on these non-essential goods or switch to alternative products. This behavior further weakens the overall impact of tariffs on inflation.

The impact of tariffs on the prices of intermediate goods used in the production process typically does not appear immediately in CPI data. An increase in intermediate goods prices must first be transmitted through the production chain to the prices of final consumer products, a process that involves a time lag. Therefore, it is not incorrect to say that the impact of a trade war on inflation requires long-term observation. However, the actual effects are more evident in specific products, such as automobiles, rather than in the CPI indicator itself. To accurately assess the impact of tariff policies on U.S. inflation, one must also focus on the price trends of specific goods, particularly imported ones. In theory, tariff policies should push up the prices of imported goods. However, data from May 2025 shows that the prices of many import-dependent durable goods and apparel actually fell rather than rose. Durable goods declined by 0.2%, and apparel fell by 0.1%. This outcome runs counter to expectations that tariffs would raise prices, suggesting that the trade war's actual impact may have fallen short of market expectations.

There are reasons for this. First, trade negotiations between the U.S. and many countries are still ongoing. The “Liberation Day” threat to impose high tariffs on 60 countries has mostly been postponed, which has significantly weakened the real impact of the tariffs. Of the tariffs announced by the Trump administration against multiple countries, only those on Chinese goods took immediate effect. After several rounds of negotiations, Chinese products currently face U.S. tariffs of 30%–55% (including a 10% base tariff, 20% fentanyl-related tariff, and certain Section 301 tariffs).Meanwhile, tariffs on other countries mostly remain at the 10% base level, and many products have been granted tariff exemptions. For example, the 25% tariff on goods from Canada and Mexico applies only to items not covered under the U.S.-Mexico-Canada Agreement (USMCA), but more than 80% of exports from these two countries to the U.S. meet USMCA standards and thus are exempt. Additionally, reciprocal tariffs on other global countries (ranging from 11%–50%) have been suspended until July 9, and key items like smartphones and computers have been granted exemptions.

Global economic and market factors have also helped to some extent in mitigating the impact of the trade war. The U.S. has a relatively diversified range of trade channels for imported goods, and its sources for electronics and apparel are not limited to China. In recent years, the share of U.S. imports coming from countries such as Vietnam and India has gradually increased. These countries are not subject to high tariffs, and their low-cost goods have effectively curbed price increases. For example, by 2024, the share of consumer goods imported by the U.S. from China had dropped to 17%, while the shares from Vietnam and India continued to rise. This diversification of the supply chain has further diluted the inflationary effects of tariffs. In addition, a stronger U.S. dollar and weak global demand have also helped lower the cost of imported goods, offsetting some of the effects of the tariffs.

The Trump administration's "Drill, Baby, Drill" pledge has curbed inflationary pressure from another angle. After taking office, Trump actively fulfilled his campaign promises by loosening restrictions on shale oil and natural gas extraction, significantly boosting global energy supply and reducing oil prices in the U.S. By early 2025, global crude oil production had increased by approximately 1 million barrels per day, and the price of Brent crude oil fell below USD 70 per barrel, driving down gasoline prices. According to May CPI data, the decline in energy prices directly lowered the energy index and reduced both household consumption burdens and business production costs. This effect not only offset some of the price increases potentially caused by tariffs but also provided crucial support for the moderate inflation levels observed.

However, despite the seemingly stable current level of inflation in the U.S., there remains uncertainty in the short to medium term. The outcome of the Trump administration’s trade negotiations with other countries will directly determine whether the full-scale tariffs are implemented. If the reciprocal tariffs on 60 countries are fully reinstated after July 9, the high tariffs could lead to supply chain disruptions and rising prices for imported goods. Given the relatively low weighting of imported goods in the CPI, price declines in other consumption categories could completely offset the impact of tariffs. As a result, CPI data may still not show any dramatic changes. In reality, the impact of the trade war is not limited to price increases; it also includes supply chain bottlenecks, employment pressure, and declining confidence. These factors are difficult to capture through CPI alone but will manifest in specific product sectors.

Final analysis conclusion:

From the latest U.S. CPI data, on the surface, the Trump administration’s tariff policies have not triggered the strong inflationary response that many had expected. This reflects a common misconception: overreliance on the overall CPI to evaluate the impact of the trade war. The overall level of inflation in the U.S. does not accurately reflect the direct effects of tariffs. This is because, within the vast scale of U.S. consumer spending, the price changes of goods directly affected by tariffs are slow to materialize and account for only a small proportion of the total. As a result, the impact of tariffs on the overall price level has been diluted.