Was President Trump right that there won’t be any big impact from tariffs

The initial impact of U.S. President Donald Trump’s recent tariff policy appears to have been more muted than many economists expected, raising questions about whether the broader economic fallout will be as limited as he predicted.

The reversal of most tit-for-tat tariffs between the U.S. and China has supported a sharp rebound in markets. The S&P 500 is nearing its mid-February high, and the dollar has weakened by about 7%.

Short-term yields have dipped, and crude oil is down roughly $10 per barrel, more than reversing the tightening in financial conditions.

According to Capital Economics, hard economic data so far point to limited effects. Customs duties increased to $15.6 billion in April from $8.2 billion in March, but that figure annualizes to just $187 billion—far short of the $380 billion expected under a 15% average tariff rate.

“It appears that, maybe hoping Trump would reduce tariffs further or exempt more goods, firms temporarily halted imports and are running down inventories instead,” Capital Economics said in a Friday note.

Consumer price data also showed minimal pressure. Core CPI goods prices rose by just 0.06% month-on-month, with declines in clothing, used vehicles, and food offsetting gains in appliances and electronics.

“If you look hard enough, you can just about find an early tariff effect on prices,” Capital Economics wrote, “but it was much smaller than we originally expected.”

So far, most foreign carmakers have avoided price hikes by relying on inventory, but shortages may develop by summer if trade talks stall.

Last week, Walmart’s CEO Doug McMillan said that “given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure,” and warned that “the higher tariffs will result in higher prices.”

Retail sales and industrial production softened only slightly in April, consistent with a pull-forward of activity in March. As a result, Capital Economics has lifted its Q2 GDP growth forecast to 2.6% from 2.0%.

The subdued April data have reopened debate about the longer-term impact.

“The lack of any obvious tariff effect in either the price or activity data for April raises an interesting question – is it just taking longer for it to show up or was President Trump right after all and there won’t be any big impact?” the broker asked.

While Capital Economics believes effects may still emerge over time, they now expect core CPI inflation to peak below 4% and overall inflation below 3.5%, with fiscal stimulus likely offsetting tariff revenues to keep GDP growth near 2% in the back half of the year.