{"id":2947,"date":"2025-04-03T13:47:10","date_gmt":"2025-04-03T13:47:10","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/2025\/04\/03\/a-thorn-in-the-feds-side-what-could-tariffs-mean-for-u-s-inflation-and-growth\/"},"modified":"2026-03-31T18:17:46","modified_gmt":"2026-03-31T18:17:46","slug":"a-thorn-in-the-feds-side-what-could-tariffs-mean-for-u-s-inflation-and-growth","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/us-analysis\/us-featured-analysis\/a-thorn-in-the-feds-side-what-could-tariffs-mean-for-u-s-inflation-and-growth\/","title":{"rendered":"A thorn in the Fed\u2019s side: What could tariffs mean for U.S. inflation and growth?"},"content":{"rendered":"\n
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President Trump unveiled sweeping \u201creciprocal\u201d tariffs on April 2 (\u201cLiberation Day\u201d) from the White House rose garden, imposing targeted measures on a wide range of trading partners and a blanket tariff on nearly all countries at a rate of 10%. Canada and Mexico emerged relatively unscathed, with USMCA exemptions still in effect. This time, Southeast Asian countries were the most significantly impacted. The announcement pushed the U.S. average effective tariff rate to 24%, from 6.2% in March (and 2.4% in 2024). With so many countries targeted, it is difficult to see an immediately accessible off ramp. Should these tariffs stay in place in the coming months, our expectation is to see significant upward pressure in inflation and negative shocks to growth. Below, we expand on how this could impact inflation\u2019s path and weigh on U.S. growth in a range of possible scenarios.<\/p>\n\n\n\n

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Top 15 import countries<\/th>Import Value ($USD
Billions)- Total Imports<\/th>		Share of
US Imports<\/th>		Trade Balance
(USD Billions)<\/th>		U.S. Reciprocal
Tariff Rate<\/th><\/tr><\/thead>
European Union<\/td>605.8<\/td>18.5%<\/td>-235.6<\/td>20%<\/td><\/tr>
Mexico<\/td>505.9<\/td>15.5%<\/td>-171.8<\/td>25%*<\/td><\/tr>
China<\/td>438.9<\/td>13.4%<\/td>-295.4<\/td>34%<\/td><\/tr>
Canada<\/td>412.7<\/td>12.6%<\/td>-64.2<\/td>25%*<\/td><\/tr>
Japan<\/td>148.2<\/td>4.5%<\/td>-68.5<\/td>24%<\/td><\/tr>
Vietnam<\/td>136.6<\/td>4.2%<\/td>-123.5<\/td>46%<\/td><\/tr>
Korea, South<\/td>131.5<\/td>4.0%<\/td>-66<\/td>25%<\/td><\/tr>
Tiawan<\/td>116.3<\/td>3.6%<\/td>-73.9<\/td>32%<\/td><\/tr>
India<\/td>87.4<\/td>2.7%<\/td>-45.7<\/td>26%<\/td><\/tr>
United Kingdom<\/td>68.1<\/td>2.1%<\/td>11.9<\/td>10%<\/td><\/tr>
Switzerland<\/td>63.4<\/td>1.9%<\/td>-38.5<\/td>31%<\/td><\/tr>
Thailand<\/td>63.3<\/td>1.9%<\/td>-45.6<\/td>36%<\/td><\/tr>
Malaysia<\/td>52.5<\/td>1.6%<\/td>-24.8<\/td>24%<\/td><\/tr>
Singapore<\/td>43.2<\/td>1.3%<\/td>2.8<\/td>10%<\/td><\/tr>
Brazil<\/td>42.3<\/td>1.3%<\/td>7.4<\/td>10%<\/td><\/tr><\/tbody><\/table>\n\n\n\n

Source: U.S. Census Bureau, RBC Economics<\/p>\n\n\n\n

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Core inflation could approach 4% if current tariffs are prolonged<\/h3>\n\n\n\n

Roughly 10% of U.S. consumption is accounted for by goods and services imported from abroad. Considering the extent of sweeping tariffs, it will be relatively difficult for consumers to substitute away from imported goods in the near term. For example, U.S. technology in many cases requires chips from Asia and most textile factories are found beyond U.S. borders. We have elaborated on how 25% tariffs will impact the price of new cars here<\/a> \u2013 but outside of the auto sector, \u201creciprocal\u201d tariffs will show up in household furnishings (including Scandinavian furniture), recreation commodities (including children\u2019s toys largely from Asia), and medical supplies from Europe among others. We expect to see a spike in core goods inflation as early as May. This would result in a notable increase in both core and headline inflation. Relative to our baseline forecast (prior to the announcement we had core inflation ending the year at 2.7% y\/y), we have modeled two likely tariff risk scenarios:<\/p>\n\n\n\n