However, if the recently announced trade deals hold and the threatened August 1 duties are applied, the impact on the U.S. economy would likely be slightly slower economic growth in the second half of 2025 and 2026 relative to current expectations. U.S. trade policy will remain center stage later this year as USMCA negotiations get underway. Without an extension of the agreement underpinning intra-North American trade, the effective tariff rate on U.S. imports would rise even higher and inflict greater costs on the U.S. economy.
Key highlights include:
The imposition of tariffs over the last six months -- which includes a universal baseline tariff of 10%, elevated duties on goods from China, and product levies on autos, steel and aluminum -- marks a historic shift in U.S. trade policy. The effective tariff rate reached 8.8% in May, its highest level since 1946.
With a series of recent trade deals and the August 1 deadline approaching, U.S. tariffs are set to increase further. While the scale and timing of tariff costs are uncertain, we expect recent trade developments to marginally weaken the growth outlook. Some tariff increases are likely to be passed on to consumers, and the incremental impact on inflation could delay monetary easing. The extent of the damage will depend on the size of the post-August 1 tariffs as well as the degree of retaliation.
So far, the tariff-protection provided by the USMCA has shielded all three North American economies from most U.S. tariffs. In that context, USMCA negotiations, which look set to get underway in the second half of the year, will be important in shaping the near-term growth outlook.
"The U.S. economy powered through the first half of the year despite rising concerns around U.S. protectionism," says Michael Heydt, Senior Vice President -- Sector Lead, Global Sovereign Ratings. "However, we suspect that the full impact of the tariffs already on the books is still working its way through the economy, and the recent trade deals and the looming August 1 deadline suggest that U.S. tariffs are set to go up, not down. Overall, the imposition of higher tariffs, combined with ongoing policy uncertainty, will likely weigh on activity in the second half of the year and in 2026."
DBRS Morningstar Commentary on Rising Protectionism Weaking US Growth
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