Economic News

From IMF’s July World Economic Outlook, released today: Figure 1: GDP (bold black), CBO current law projection of January (tan), implied CEA forecast using CBO current law (red squares), mean forecast from July WSJ survey (light blue line, x), July WEO (light green triangle), all in bn.Ch.2017$ SAAR. Source: BEA 2025Q1 3rd release, CBO January 2025, CEA (2025), WSJ survey, and author’s calculations. The IMF WEO trajectory is based on this forecast: Source: IMF, WEO July 2025 update. From the report: Global growth is projected at 3.0 percent for 2025 and 3.1 percent in 2026. The forecast for 2025 is 0.2 percentage point higher than that in the reference forecast of the April 2025 World Economic Outlook (WEO) and 0.1 percentage point higher for 2026. This reflects stronger-than-expected front-loading in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; an improvement in financial conditions, including due to a weaker US dollar; and fiscal expansion in some major jurisdictions. Global headline inflation is expected to fall to 4.2 percent in 2025 and 3.6 percent in 2026, a path similar to the one projected in April. The overall picture hides notable cross-country differences, with forecasts predicting inflation will remain above target in the United States and be more subdued in other large economies. Risks to the outlook are tilted to the downside, as they were in the April 2025 WEO. A rebound in effective tariff rates could lead to weaker growth. Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements. Geopolitical tensions could disrupt global supply chains and push commodity prices up. Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions. Combined with fragmentation concerns, this could reignite volatility in financial markets. On the upside, global growth could be lifted if trade negotiations lead to a predictable framework and to a decline in tariffs. Policies need to bring confidence, predictability, and sustainability by calming tensions, preserving price and financial stability, restoring fiscal buffers, and implementing much-needed structural reforms.

The Yale Budget Lab regularly (’cause… Trump) updates the stated effective tariff rate. But what’s the actual effective tariff rate in effect given all the threats, pauses, etc.? Not sure? Fortunately, Paweł Skrzypczyński is on the case: Source: Paweł Skrzypczyński, accessed 7/29/2025. As of June July, the average effective tariff rate is 9.1%. Note that as of today (noon CT), Yale Budget Lab indicates the average effective tariff rate given policies announced through 7/27 is 16.6% (pre-substitution, before August 1 tariffs are in effect).            

And it is right to do so (for now)

Washington has locked in tariffs on almost 45% of American imports

Local governments are steering investment into new factories, adding to overcapacity and eroding profit margins

Information overload may be contributing to the S&P 500’s resilience

Consumer goods giant reports sales growth helped by rising prices of personal care and household products

Brad Swanson Rather than deporting millions of migrants, this Republican president opted for the opposite strategy—legalizing them. The post What We Can Learn About Immigration From an Unlikely Source: Ronald Reagan appeared first on The Nation.

Oral arguments before the appellate court take place this week. Suppose the tariffs invoked under IEEPA are struck down, then that decision would likely be appealed to the Supreme Court (eventually). From CNBC: The case, known as V.O.S. Selections v. Trump, is the furthest along of more than half a dozen federal lawsuits challenging Trump’s use of the emergency-powers law. It’s set for oral argument before the Federal Circuit on Thursday morning. “I think the tariffs are at risk,” said Ted Murphy, partner and head of global trade practice at law firm Sidley Austin, in an interview with CNBC. The law has “never been used for this purpose,” and it’s “being used quite broadly,” Murphy said. “So I think there are legitimate questions.” What about at the Supreme Court? The article continues: “Trump will probably continue to lose in the lower courts, and we believe the Supreme Court is highly unlikely to rule in his favor,” U.S. policy analysts from Piper Sandler wrote in a research note Friday morning. The analysts wrote that such a loss would effectively mean the collapse of almost every trade development that Trump has held up as an accomplishment during his first six months in office. “If the Supreme Court rules against Trump, all of the trade deals Trump has reached in recent weeks — and those he will reach in the coming days — are illegal,” the analysts wrote. “So are his letters informing countries of their new tariffs, the current 10% minimum, and the reciprocal tariffs he has proposed or threatened,” they added. If the analyst is correct, then the question would be whether Mr. Trump complies. Abolishing the tariffs would then mean a massive hit on the US and global economy would have been for naught, while elevating policy uncertainty to capital investment-reducing levels. (Of course, better to get rid of the tariffs than to keep them.) Figure 1: Top Panel: EPU-Trade, Bottom Panel: EPU. NBER defined peak-to-trough recession dates shaded gray. Source: policyuncertainty.com, Iacoviello, NBER.  More on the cases from the CRS. By the way, I’m not certain what “national emergency” we’re in. GDP, core GDP are growing, inflation is for the moment below 3% (albeit accelerating), unemployment is at 4.1%.

That question was posed in the WSJ, and poses three possible answers: There are three possible answers: First, it’s too early to tell. Most of the tariffs announced haven’t been in place long. … Which leads us to the second possibility—the tariffs thus far have just not been big enough to cause the harm economists warned us about from full-on protectionism. The U.S. is a relatively closed economy … So third, and tantalizingly, perhaps the conventional wisdom is wrong. Or, more precisely, since no one can deny the effect of taxes are real, perhaps, in their rush to emphasize the negatives, economists have overlooked the countervailing forces at work with tariffs: The redistribution of the burden of duties between foreign exporters, U.S. importers and consumers may be reordering the balance of benefit between domestic and foreign businesses and between companies and consumers. Federal tariff revenue up to $300 billion a year will produce gains for Americans. On count 1, I’d remark that most of the tariffs haven’t into play yet. See the effective tariff rate as calculated by the Budget Lab. Source: Budget Lab, accessed 7/28/2025. Baker also doesn’t mention the buffering effect of pre-tariff inventory accumulation, which is strange as most of the economics commentary mentions this factor. On the second point, it’s true the US economy is relatively closed as compared to say UK, or Singapore in an extreme example. But it’s more open than it was just 50 years ago, and more of the trade is of differentiated goods, included in value chains. That magnifies the impact of tariffs. So I think when the tariffs are actually in place, we will see effects (although with USMCA exemptions still in place, we won’t have it as bad as it could be). The third point is one where Baker is trying to channel the optimal tariff theory. There is a tariff rate that — given the elasticities — maximizes welfare for the country imposing tariffs. But in general such tariff rates are not typically 10-15%, since the US is not a large economy in the context of other countries’ exports. Moreover, empirically, in the 2018 trade war, prices did not behave in a way consistent with this thesis. Most of the burden was borne by US consumers (broadly defined as domestic households, firms, workers). See pp. 133-34 in  Chinn and Irwin, International Economics (CUP, 2025).