Why Trump tariff inflation is arriving slowly Rick NewmanAugust 21, 2025 at 5:24 AM The Trump tariffs present something of a mystery. Trump's new import taxes raise the cost of many imported products by nearly 20%, on average.
- - Why Trump tariff inflation is arriving slowly
Rick NewmanAugust 21, 2025 at 5:24 AM
The Trump tariffs present something of a mystery. Trump's new import taxes raise the cost of many imported products by nearly 20%, on average. Yet price changes at the wholesale and retail level are nowhere near that magnitude. The higher cost of tariffs appears to be hiding deep inside global supply chains.
One new clue helps explain why Trump's new consumption taxes aren't fully hitting consumers just yet. Analysis by Capital Economics finds that the actual tariff rate paid on imports in June was just 9%. At the time, analysts estimated the average tariff rate to be around 15%. It turned out to be lower in reality because many US importers shifted their mix and source of imports to minimize the cost of the tariffs.
Research outfits such as the Yale Budget Lab, along with many private firms, have been trying to estimate average tariff rates at every step of Trump's convoluted trade war. That data helps economists estimate the effect of tariffs on the economy, while investors try to suss out which firms and sectors will be helped or hurt by the new taxes.
Estimates of the average tariff rate have changed many times during the past six months as Trump has threatened new tariffs, imposed some, delayed others, announced trade agreements, and changed his mind. The average tariff was about 2.5% when Trump took office. It went as high as 28% in April and May, according to the Yale Budget Lab. Since then, it has dropped to around 19%.
But those estimates rely on assumptions about what US firms will continue to import and from where. The actual June data shows that US importers were craftier than expected. "The composition of imports has shifted compared to 2024, with a higher proportion coming from countries with relatively low tariff rates," Capital Economics found.
The June data, for instance, shows that fewer imports came from China, which faced a 40% tariff rate. More imports came from Vietnam, Taiwan, and India, which faced lower rates at the time. That pushed the actual tariff rate lower than if import shares by country had stayed the same.
Read more: What Trump's tariffs mean for the economy and your wallet
US businesses also shifted the kind of stuff they brought into the country. Imports of steel and aluminum — generally subject to a new 25% tariff — fell as a portion of all imported products. But there was an increase in electronics exempt from tariffs.
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A third factor keeping the tariff rate fairly low was more "compliant" trade with Canada and Mexico than expected. That means there was more trade in goods that meet domestic-content requirements and are therefore exempt from the new Trump tariffs.
The June trend probably reflects the delayed onset of tariff inflation, rather than the total avoidance of it. Importers have been ducking and weaving as circumstances allow, but they can't do that forever. They can stock inventories with cheaper low-tariff goods while running down stockpiles of costlier high-tariff goods — for a while. But at some point, demand will require them to replenish all inventories, regardless of the tariffs.
Plus, Trump is wise to the transshipment of goods from a high-tariff country to the US via a low-tariff country, and some of his trade rules specifically target that. Imports from Vietnam, for instance, face a 20% tariff, but it's 40% if those products really come from China or some other country and just make a stop in Vietnam on their way to the US.
Read more: 5 ways to tariff-proof your finances
Even with lower-than-expected tariff rates — for now — tariff inflation is beginning to materialize. Monthly tariff revenue collected by the government has jumped from about $8 billion per month before Trump to about $30 billion now. That tax revenue comes from US businesses that have to pay the tariffs when they take possession of imported goods. It's real money that real Americans are forking over.
Wholesale prices in July jumped by the most in three years, confirming that importers are now paying more for goods. During the second quarter earnings season, dozens of big companies, including Apple (AAPL), Ford (F), General Motors (GM), Johnson & Johnson (JNJ), Kimberly-Clark (KMB), and Procter & Gamble (PG), said tariffs are denting profit margins.
Citi estimates that, for now, companies are absorbing most of the cost of tariffs through lower margins and supply chain workarounds. But the pain will eventually flow through to consumers.
"US firms appear to be absorbing 60%-70% of the tariffs," Citi researchers said in an August 20 analysis. "However, we doubt that this will prove sustainable. We expect that firms will increasingly seek to pass the tariffs through to their foreign suppliers and US customers."
Trump's trade deals will eventually yield a much clearer picture. The past several months have been a hodgepodge of on-and-off tariffs that have dramatically distorted trade flows. But a year from now, say, there will likely be across-the-board tariffs on most imports that range from 15% to 40%, plus product-specific tariffs on certain product categories that leave nowhere to hide. If you haven't noticed tariff inflation yet, you will soon.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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