Why Trump’s Economy Hasn’t Cracked Under Tariffs (Yet) | WSJ

Why Trump’s Economy Hasn’t Cracked Under Tariffs (Yet) | WSJ

– [Narrator] The US economy is facing a make or break moment. – And our country’s becoming very rich. – [Narrator] Key economic data
is painting a murky picture. Inflation has so far defied the worst of economists’ expectations, and the US consumer remains strong, but pockets of weakness
in the labor market and slower growth are raising red flags. – I think most economists
expected this summer to really be that period where, you know,
you begin to see the effects, and I think we’re now like
we’re right at that doorstep. – [Narrator] So why has
the US economy remained so resilient despite
Trump’s steep tariffs, and are the cracks beginning to show? Let’s first take a look at where President Trump’s tariffs stand. The administration
significantly hiked tariffs on virtually all US trading
partners on August 7th. Some major economies, like
the European Union, Japan, and South Korea face a 15% tariff. While others like Canada,
Switzerland, Brazil, and India face much higher rates,
upwards of 35% to 50%. China is on a different track
than most other nations. Its tariff rate is set to soar unless a deal is reached. – For the world. – [Reporter] What percent
will that tariff be? – I would say it’ll be somewhere
in the 15% to 20% range. – We started the beginning of the year at a 3% average
effective tariff rate. If you were taking the
initial Liberation Day tariffs and you calculated out
what that would mean, it could have been as high as 15%, which is a 5X higher than
where we were before. Right now, we have to see
where we’re gonna land. We do expect above 10, right,
above that 10% average. And so what this essentially means for us is that it could be inflationary. – [Narrator] Trump’s
tariffs haven’t fueled a massive spike in prices yet, although there’s evidence
they’re starting to leave a mark. The consumer price index rose 2.7% in June when compared with the year earlier. The core measure, which
excludes volatile prices like food and energy, rose 2.9%. That’s a modest uptick
compared to previous months, although still above the
federal reserve’s 2% target. – This will not turn out to be inflation, because we’ll make sure that it’s not. We will throw our tools, make sure that this does not move from being a one-time price increase to serious inflation. – We have started to see the effects of inflation in the most likely of areas. The big ticket items, appliances, furniture, tools, children’s items, all of those things
have picked up in price. – We saw a pretty rapid
pickup in June relative to what we had been sort
of seeing so far this year, and really practically
everything rose this month. Some components set really big records. – [Narrator] Gross
Domestic Product, or GDP, grew at a robust annual rate of 3% in the second quarter of 2025. That was up from a half
percent contraction in the first quarter and driven
by strong consumer spending. – Our economics team, they have modeled out an
expectation for 0.8% GDP growth for 2025 in the fourth quarter. So this is not a
recession, but a slowdown. – [Narrator] Combined with the
first quarter’s GDP figure, however, the economy grew 1.2% in the first half of the year, down from the 2.5% average pace in 2024. – What you see is a rate
of growth that is slower than what it was in 2024,
but isn’t disastrous. It doesn’t suggest that a recession is happening or that one is imminent. – [Narrator] The US jobs market had been a source of strength, until July. Job growth slowed to 73,000 that month, well below expectations. The labor department also sharply revised May and June’s figures by
a combined 258,000 jobs. – Well, it really was a
stunning downward revision, and it really sort of confirmed something
we’d already been seeing in the soft data, and that is that the US
economy had been slowing and been slowing fairly dramatically. – [Narrator] This is
a problem for the Fed, because it has a dual
mandate of price stability and maximum employment. Keeping its benchmark
interest rate too high could keep inflation subdued, but could also cause unnecessary
damage to the job market. – This is the special situation we’re in, which is we have two-sided risk, risk to both of our goals. – The labor market has
been pretty clearly slowing over the course of this year. It hasn’t been collapsing. I think the labor market generally for now looks like it is in balance, and so the question from
a central bank perspective is how proactive do you want to be? – [Narrator] The Trump
administration has criticized the Fed for not lowering interest rates sooner, while defending its trade policies. – We have a great thing going. I think we’re gonna
have the richest economy you’ve ever seen. – [Narrator] But given
the underlying weaknesses, the second half of 2025 could be even more
unpredictable than the first. – Beginning of the fall, we’re gonna have
significantly more clarity and understanding of not just
how the market should respond to these tariff rates, but also what does it actually mean for the average consumer. And it’s likely to
actually start showing up as business owners can start to make well educated decisions about how much they actually
have to increase prices. – We look for growth this year to be between half a percent and 1%, which is below trend, slower than it has been
for the past several years, but still consistent with a pretty soft
landing in economic terms. If you can go through the sorts of events that we’ve gone through and the sorts of policy changes that we
have and still have growth-in that stays meaningfully above zero, I think that’s a pretty good outcome. – Our expectation right now is for no growth in the
second half of the year, sort of moving sideways, not enough to necessarily
declare a recession, but it is nonetheless not the
best of economic situations for most Americans as they look at it.

Economists braced for the worst when President Trump announced his tariff plan in April, yet the U.S. economy remained resilient. Inflation has defied the worst of expectations so far, but weakness in the July jobs report showed a weaker labor market and slower GDP growth in the first half of 2025 have raised red flags.

WSJ explains why the economy’s strength could be tested in the coming months.

Chapters:
0:00 Trump’s economy
0:36 Tariffs
1:37 Inflation
2:35 GDP
3:21 Jobs
4:22 What’s next?

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