The Blubber

The International Monetary Fund (IMF) also expects Trump’s tariffs to contribute to rising inflation in the U.S., according to its latest outlook report.

The primary reason why higher U.S. tariffs are likely to drive up prices domestically is that tariffs function as taxes on imports—whether those are finished products or components.

There are already indications that some businesses plan to pass those additional costs on to American consumers rather than absorb them. For instance, Adidas CEO Bjørn Gulden said earlier this week that rising costs from higher tariffs “will eventually cause price increases” in the U.S. He noted there’s “no reason” to hike prices outside of the U.S. due to the duties.

Evidence from the first round of U.S. tariffs imposed in 2018 during Trump’s previous term suggests another round of inflation could be ahead. A 2019 study co-authored by Mary Amiti of the Federal Reserve Bank of New York found a “complete pass-through” of those tariffs into U.S. prices for imported goods.

A shopper in New York carries an Adidas bag on April 30, 2025. (Michael Nagle/Bloomberg/Getty Images)

Even companies not directly affected by the tariffs may raise their prices. “Domestic producers raise their prices when their foreign competitors are forced to raise prices due to higher tariffs,” Amiti and her colleagues noted.

Trump has already enacted a 10% tariff on imports from nearly every country, alongside steeper tariffs targeting specific sectors and a sweeping duty on Chinese goods. Meanwhile, the European Union has so far only issued threats of limited retaliatory tariffs on U.S. products.

The EU might eventually take more aggressive action, potentially pushing up the cost of U.S. imports into Europe. Still, any inflationary impact there would likely be smaller than what the U.S. faces. That’s because, unlike Trump’s broad-brush strategy, Europe’s response targets just one country’s exports, George Buckley, chief European economist at Nomura, told CNN.

As it stands, many economists believe Trump’s tariffs could actually help slow inflation in Europe this year and next in four main ways.

The China effect
One factor is what European Central Bank President Christine Lagarde described as China potentially “rerouting” exports away from the U.S. and toward Europe. “That would have a dampening impact on prices,” she said during a Washington Post Live interview last week. A larger supply of goods on the market increases competition, typically leading to lower prices for consumers.

Jack Allen-Reynolds, a senior economist at Capital Economics, noted in an April briefing: “Increased competition from cheap Chinese imports could push goods prices down… And with China currently facing much higher tariffs than we had expected, its exporters might slash prices further to offload goods that would otherwise have been sent to the U.S.”

A cargo ship departs Qingdao Port in China on April 23, 2025, carrying foreign trade containers.

China’s exports to the U.S. are already declining sharply, with shipping data showing a significant drop in sailings last month.

Trump’s erratic trade policies have also discouraged investment in U.S. assets, including the dollar. Meanwhile, the euro has gained value since April 2, when Trump announced the new 10% tariffs on almost all countries, along with even higher duties on imports from about 60 economies and trading blocs, including the EU.