Tariff affordability

Daily update

US Treasury Secretary Bessent signaled US importers could expect to pay a 15% tariff. US President Trump had mentioned this, but endorsement by an administration official adds credibility. The effect is not necessarily to raise inflation but—because tariff composition differs from the illegal IEEPA tariffs—could keep inflation rates higher for longer. Tariff reductions are not passed on to consumers the way tariff increases are.
The US affordability crisis is about inflation perception more than inflation reality. Perceptions focus on high frequency purchases. Gasoline prices were already rising at the start of the week, and data suggest a very abrupt increase in the past two days (perhaps hinting at profit-led inflation). Higher inflation perceptions may not change US consumers’ willingness to spend, but do have political power.
China’s parliament approved a growth target of 4.5% to 5% for this year—the lowest in decades. Official growth targets shape official behavior because official growth targets are nearly always (officially) met. China has a falling population, which is a headwind for growth. The composition of growth, with mediocre domestic demand, is perhaps more of a problem than the lower target.
Eurozone January retail sales data should show strength—European consumers are a steady, if somewhat dull, support for the economy.