US President Donald Trump will speak to the media when he meets British Prime Minister Kiel Starmer (not in the photo) at Trump Turnberry Golf Club on July 28, 2025 at Turnberry, Scotland.
Christopher Farron | Getty Images
US tariffs on incoming goods seem to be calming down just a little less than what President Donald Trump threatened in April, but this difference was enough to ease the horrors of the worst recession on Wall Street.
With the weekend-long US-European union trade agreements, effective tariff rates outside of nominal levels, or net impact, appear to range from 15% to 20%. This is well above the single-digit low rate at the beginning of the year, but a significant distance is from the rates above 25%, which could have been the result of the April 2nd announcement.
Economists feared that the offensive tariffs Trump proposed in his release on April 2nd would surge in inflation, leading to a significant slowdown or recession.
However, since then, the end of the customs declaration has waned. Economists cite strong global growth backgrounds, including the effects of long-term inflation that are not expected and the general easing in the fiscal situation as reasons why the landscape appears less disastrous.
For example, JPMorgan Chase reduced the risk of a recession from a 60% release date level to 40%. This is higher than normal, but at least pessimistic.
“The tariffs are tax hikes on the purchase of US foreign goods, but this tax resistance will not be large enough to derail the US expansion,” JP Morgan chief economist Bruce Kassman said in a memo.
Like others, the bank expected Trump’s tariffs to cause global retaliatory damage. “However, the expected increase in global trade restrictions has turned into a modest step towards opening US markets,” Kassman said.
Customs are still dangerous
Commentary around Wall Street following the US EU deal on 15% tariffs reflects the belief that the risk of a recession has become bleak, even if tariffs still have a strong potential to have a suffocating effect on growth.
“We still believe that the most likely outcomes are slow growth and solid inflation. It’s not a recession, but the negative impact of trade and immigration control on growth outweighs deregulation and large-scale fiscal boosts,” writes Morgan Stanley strategist Michael Zesas.
Certainly, the final outcome of the trade negotiations is not clear.
There are still many other issues that need to be resolved before the August 1 deadline when Trump is imposed.
Further attacks from trade skirmishes “may easily tilt the scales towards a mild recession,” Zezath added. “In short, we believe that the outcome of the US economy is skewed towards a slowdown, but the fiscal situation and deficits are now more clear and now frontloaded, reducing the risk of a major recession.”
US-European trade gives more to bite the Federal Reserve this week when discussing the impact of tariffs on inflation. Since Trump took office, the Fed has primarily stabilized benchmark short-term interest rates as it has been cautious about the impact policymakers have on inflation.
The market is not expecting action at the meeting, which closes on Wednesday. However, they are monitoring clues about the Fed’s further intentions.
The Fed is expected to approve interest rate cuts in September, and the likelihood of an occurrence appears to increase if the economy weakens while inflation is curtailed.
“The effective tariff rates are significantly higher than they were at the beginning of the year,” wrote Andrew Hollenhorst, an economist at Citigroup. “However, with key trading partner tariffs close to 15% above the much higher fees proposed on April 2, the market and Fed officials are confident that the risk of growth resistance and rising to inflation is modest.”
