Featured Research

Recently Trump announced a trade deal with the EU with terms that impose a 15% tariff on all E.U. imports (including motor vehicles) and a 0% retaliatory tariff on the U.S. Currently, if we consider consumer goods imported, EU goods account for roughly 0.75% of the U.S. consumer basket which include:

Motor Vehicles: Among the biggest “winners” of the trade deal are European automakers who traded the original 25% tariff on their vehicle exports to the U.S. for a 15% tariff, while American auto exporters saw EU tariffs fall from 10% to 0%.

Agri-food: Though details of the trade agreement have not been finalized, certain agricultural products could enjoy 0-to-0 tariff relationships while others deemed to be more “sensitive” to local industries could face current rates.

Luxury brands: Though some firms will be able to leverage their pricing power, they have limited room as more consumers become weary of buying expensive fashion items and opt for second-hand options. Regardless of price dynamics, luxury items account for an even smaller fraction of the consumer basket, unlikely to be a serious driver of inflation.

From a tariff of 10% to 15%, prices for roughly 0.75% of the consumer basket are expected to increase in price. A one-off increase would imply a 0.04%MoM increase in inflation in August 2025. However, given recent trends pass-through is likely to be limited at least for a few months as firms front-load inventories and demand remains too low to pass on the tariff. More importantly, what ultimately gets translated to consumer prices depends on how substitutable these goods are and general cultural preferences for certain items. Just because American cars become cheaper in the EU doesn’t mean everyone’s going to be in a rush to buy an Apocalypse Hellfire, while Americans that can afford expensive wines and charcuterie boards will probably continue fine dining even if it costs them 15% more.

“Today’s deal creates certainty in uncertain times. It delivers stability and predictability, for citizens and businesses on both sides of the Atlantic. This is a deal between the two largest economies in the world.” (-EU President Von Der Leyen)

One positive outcome from this trade deal is the return to stability. The 90-day tariff pause displayed a glimpse of predictability by anchoring consumer expectations with trade talks and possibly averting a magnitude higher level of inflation that would have otherwise transpired. It helped bring global uncertainty down and gave a short-term boost to consumer confidence.

U.S trade is still mostly operating on a 10% baseline tariff. Tariffs for many countries will be higher than 10% by August 2025. With a trade deal underway, we will finally see permanent tariffs propagate through the global economy that has yet to see substantially higher inflation. Large inventories aren’t forever, and input costs will rise. But with capital spending and hiring by business at a standstill, consumer sentiment still low, and businesses unable to maintain large inventories forever, stagflation risks are still very much alive.

Firms won’t pay the tariff bill forever. Eventually, consumers will have to pay their fair share. There’s still time for inflation to go up. But for now, Turnleaf will keep watching.