U.S. Economy Stagnates Amid Trade Policy Uncertainty
The U.S. economy showed ostensibly strong growth in Q2, primarily due to reduced imports. Domestic demand slowed significantly, exacerbated by uncertainties from protectionist trade policies. GDP increased by 3% annually, yet economists anticipate tepid growth due to ongoing tariffs and high effective tariff rates impacting consumer and business spending.
In the second quarter, the U.S. economy's growth exceeded predictions but was largely driven by a steep decline in imports, overshadowing a worrying slowdown in domestic demand. The Commerce Department's report highlighted an economy struggling under President Donald Trump's protectionist trade policies, which are defined by high tariffs and complex negotiations for trade deals. The feeble rise in consumer spending, especially after a near-stagnation in the first quarter, further evidences the economy's loss of momentum.
Despite the Trump administration's trade deals, the effective tariff rate remains among the highest since the 1930s. This is particularly concerning as about 60% of imports remain outside these agreements. "It's not a rosy picture," remarked Freya Beamish, chief economist at TS Lombard. GDP grew at an annualized rate of 3.0% last quarter, yet economists warn of a lackluster second half, predicting growth will slow to 1.5% for the year.
The environment of high tariffs has led to increased consumer spending on motor vehicles and healthcare, yet spending was slowed by restraint in the labor market and rising tariffs. Economists caution that low-income households are set to struggle most with tariffs and slowed wage growth. The forecast points to moderate consumer spending as delinquencies rise among upper-income consumers, reflecting broader economic challenges.
(With inputs from agencies.)
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