Tariff War Fallout: US Economy Feels Heat With Rising Costs, Higher PPI

As Indian exporters brace for the impact after additional 25 per cent US tariffs on key goods came into effect on Wednesday, reports said that Trump tariffs are likely to affect the US GDP by 40-50 bps by triggering inflationary pressures.

The US inflation is expected to stay above the 2 per cent target through 2026, driven by supply-side effects of tariffs and exchange rate movement, according to a report by SBI Research.

“The US is beginning to show signs of renewed inflationary pressure, driven by the pass-through effects of recent tariffs and a weaker dollar – particularly in import-sensitive sectors such as electronics, autos, and consumer durables,” the report mentioned.

The US decision to impose steep tariffs on Indian goods is set to weigh on the American economy by stoking inflationary pressures and slowing growth, the SBI said in its report.

“We believe that US tariffs is likely to affect US GDP by 40-50 bps and higher input cost inflation,” it added.

Addressing the Fed’s annual conference in Jackson Hole in the US, Federal Reserve Chair Jerome Powell is trying to balance rising prices and risks in a fragile job market. He said the effects of higher tariffs on prices are “now clearly visible”.

US wholesale prices jumped nearly 1 per cent in July – the fastest increase in over three years – as tariff war resulted into rising costs. The Producer Price Index rose 3.3 per cent year-on-year, with services, processed goods, and tariff-heavy imports like furniture and apparel seeing sharp price hikes.

Economists warn that unless tariffs are rolled back, families in the US will face more pressure on their budgets.

Earlier, the Department of Homeland Security (DHS) circulated a draft notification that it was imposing on Wednesday (US time) an additional 25 per cent tariff on India to address “threats to the United States by the Government of the Russian Federation”.

That is to be on top of the 25 per cent announced earlier, with exemptions for some items like electronics and pharmaceuticals.