Barclays_US_Economics_Mind_the_tariff_gap

Please see analyst certifications and important disclosures beginning on page 16.US EconomicsMind the tariff gapThe effective tariff rate increase has been limited despitehigh-profile announcements, helping to explain the benigneffects on activity and inflation. However, delayed effects andnew tariffs could create an additional 1% drag on GDP. Atleast three-quarters of the price effect is yet to come.• As of June, over half of imports continued to enter the US duty-free and the effective tariffrate was "just" 10%.• The real surprise in the US economy’s resilience lies not in its reaction to tariffs but that therise in the effective tariff rate has been more modest than commonly thought.• Our models suggest tariffs have exerted a drag of 0.4% on GDP thus far and point toan additional hit of c.1% due to further increases in tariffs and the delayed effects of pastones. We expect tariffs to raise the headline price level by 0.8% in total, with at least three-quarters of the effect yet to come.• The effective tariff increase up to June is likely only about half of the eventual total hike:higher reciprocal tariffs have already been announced, new sectoral tariffs are in the pipeline,some carve-outs may be removed, and the current extent of trade diversion may proveunsustainable. Whether the electronics exemption remains in place will be key to watch.• Using an extremely granular dataset, we demonstrate that the limited increase in effectivetariffs so far is largely due to trade diversion away from China and many exemptions,including USMCA and a long list of goods entering duty-free without trade programs.• By replicating two regional Fed papers, we benchmark actual economic outcomes so far –such as drag on GDP and the boost to prices – and show they are broadly in line with modelpredictions given the implemented tariffs. Price pass-through until June was slightly moremuted than implied by models, but the estimates suggest it will continue.FICC ResearchEconomics8 August 2025SIGNATUREMark Cus Babic+1 212 526 1870mark.cusbabic@barclays.comBCI, USMarc Giannoni+1 212 526 9373marc.giannoni@barclays.comBCI, USJonathan Millar+1 212 526 4876jonathan.millar@barclays.comBCI, USPooja Sriram+1 212 526 0713pooja.sriram@barclays.comBCI, USColin Johanson+1 212 526 8536colin.johanson@barclays.comBCI, USCompleted: 07-Aug-25, 21:49 GMT Released: 08-Aug-25, 10:00 GMTRestricted - External1 To obtain this, take the 14.4% tariff from Figure 5 in US Outlook: Plus ça change... and subtract the bars for chips (0.5pp),pharma (1.3pp), and half of steel and aluminum (1.0pp/2 = 0.5pp). This yields 12.1%.2 Back of the envelope caculation assuming 10% import content in the CPI basket. 0.2pp under full pasthrough, 0.1ppunder 50% passthrough.FIGURE 1. Tariff revenues have increased significantly...FIGURE 2. ...but the effective tariff rate has been lower than expectedgiven the announcements020406080100120Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SepFiscal year-to-date tariff revenues