Tariff uncertainty: International community raises projections for US inflation, risking self-inflicted economic harm

Editor's note: Zhou Jianjun is an assistant researcher at the Institute of State System Research and School of Economics at Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

The Organization for Economic Cooperation and Development (OECD) released its Economic Outlook report on June 3, projecting that the US economy will grow by only 1.6 percent this year, 0.6 percentage point lower than its March forecast. At the same time, the overall inflation forecast for the US this year was raised by 0.4 percentage point from its March figure to 3.2 percent. While data shows that both the US Producer Price Index (PPI) and Consumer Price Index (CPI) unexpectedly declined in April, economists warned that the country's tariff policy could divert inflation from its downward path.

Tariff hikes increase consumer costs and drive up US inflation

Since the Federal Reserve began raising interest rates in 2022, US inflation has been decreasing. In April 2025, PPI fell 0.5 percent month on month, the steepest drop since April 2020. CPI also grew more slowly than expected, increasing just 2.3 percent in April. However, with US President Donald Trump imposing "reciprocal" tariffs on countries worldwide, the prices of imported goods entering the US are set to surge, likely driving inflation back upward. Due to existing inventories, US CPI in April had yet to reflect the impact of additional tariffs. Nonetheless, as tariffs take hold and affected goods flow into the US market, the resulting price increases will be reflected in inflation metrics. The latest data shows that US CPI rose to 2.4 percent in May 2025, up 0.1 percentage point from April, signaling that inflation was again mounting. At the same time, the PPI increased 0.2 percent month on month in May. Overall, the downward momentum of US inflation is likely to be reversed by tariffs, which may become a chief factor driving US inflation higher in the coming months.

Higher tariffs will increase burdens on consumers and disrupt the normal operations of US enterprises

Once the tariffs take effect, surging prices in the US will dramatically push up the cost of living for ordinary Americans. According to the Peterson Institute for International Economics, more than 90 percent of the cost of tariffs will be passed on to US importers, downstream enterprises and end consumers. The Budget Lab at Yale projects that if other countries retaliate, personal consumption expenditures in the US could rise by 2.1 percent, with average household losses estimated at $1,300 for low-income households, $2,100 for middle-income households, and $5,400 for high-income households. The US attempts to restrict foreign imports through tariffs to revitalize domestic manufacturing. 

However, this approach overlooks a key reality. Given the specialized division of labor and global production networks, no country can produce complex goods independently, and large quantities of imported intermediate goods and components are indispensable. By raising the costs for US enterprises importing these intermediate goods and components, "reciprocal" tariffs may even sever supply chains. This will interfere with normal business operations and weaken the global competitiveness of US enterprises. Rather than shielding US companies, Trump's tariffs are actually strangling their businesses. Higher business costs caused by tariff policies will inevitably escalate US inflation and ultimately be passed on to ordinary American consumers.

Retaliatory tariffs will not help Trump achieve his goals but only create bigger problems for US manufacturing

"Make America great again" is Trump's political ambition, but achieving this goal requires stable domestic and international environments, yet the US currently falls short of. On the one hand, Trump's return to the White House has intensified political chaos and social divisions in the US, with polls showing his approval rating at just 39 percent after his first 100 days in office, the lowest for any president in 80 years. On the other hand, "reciprocal" tariffs have provoked widespread discontent and pushback globally, further straining the US's foreign relations. If this continues, the series of policies introduced by Trump, especially his tariff measures, will not make America great again but will instead plunge the country into deeper turmoil, with even greater challenges in both domestic affairs and international relations. Only by abandoning "reciprocal" tariffs, leading global efforts to dismantle all kinds of trade barriers, and earnestly committing to free trade can the US resolve its internal problems and achieve the goal of making America great again alongside global prosperity.