Trending Now
We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
{{ subpage.title }}
US President Donald Trump speaks to reporters aboard Air Force One after departing early from the the G7 summit in Canada to return to Washington, D.C., on June 17, 2025.
Why hasn’t US inflation boomed?
When US President Donald Trump announced a swath of tariffs on virtually every US trading partner on April 2 – which he dubbed “Liberation Day” – most economists had the same warning: prices will rise. What’s more, Trump’s plan to deport millions of undocumented migrants and his adviser’s idea to weaken the US dollar would add to the buoyant pressure on prices.
Exactly three months on, those inflation distress calls appear to have been misplaced: the inflation rate was 2.4% in May, within touching distance of the Federal Reserve’s 2% target, and far below the rates seen in 2022 under former President Joe Biden – even with the dollar having its worst start to a year in over 50 years.
So why haven’t prices skyrocketed, as some economists warned?
First of all, not all the tariffs have even been imposed. When US treasury markets began to suffer following the announcement of “retaliatory tariffs,” Trump pulled back, pausing these extra taxes until July 9. What’s left of his new tariff policies are a 10% across-the-board levy – even these were briefly invalidated – a 55% rate on Chinese imports (down from 145%), and sectoral duties on goods like steel, aluminum, and auto parts. The US president has also allowed for a smattering of exemptions, most notably on smartphones and computers – those must have been a rotten Apple.
Secondly, businesses have made choices that have put a cap on price hikes.
Part of this is simply due to firms waiting for Trump to finalize his tariffs plans before they start passing on the higher costs to consumers, per University of Missouri economics professor Joseph Haslag.
“During the heyday of the negotiations, I don’t think anyone wanted to start raising prices until they knew what the final deal was going to look like,” he said.
Some of it is also thanks to forward planning. When Trump initially announced the tariffs, some firms stocked up on inputs before the duties came into effect. This has allowed them to hold prices as they continue to sell inventory that was purchased at pre-Liberation Day prices.
Finally, there are some economic factors that are putting downward pressure on prices, per Haslag. The economy is slowing, reducing demand and lowering inflation rates. What’s more, artificial intelligence may have already started helping firms to lower prices: it boosts worker and business productivity, allowing them to produce more in less time and at less cost.
Trump feels validated. The president will see the misguided warnings of high inflation as the latest example of the media and the “deep state” trying, and failing, to take him down – he lauded the low inflation rates during a May speech in Saudi Arabia. As such, he will feel that he has the green light to continue advancing other elements of his agenda, safe in the belief that any cautions from the “establishment” can be shot down as “fake news.”
Aren’t those “reciprocal tariffs” coming back though? Affirmative – they return just one week from now, and Trump’s plans are still up in the air. He has only negotiated one trade deal – with the United Kingdom – despite saying soon after “Liberation Day” that he had made 200. Treasury Secretary Scott Bessent hinted that there might be some flexibility on the timing, which would be in line with the president’s past actions.
“July 9 is not a drop-dead date on which tariffs are going to be implemented across the board,” said Haslag. “We’ve had other sorts of deadlines that have come and passed over the past few months with regards to tariffs.”
The chickens always come home to roost. For any political gains Trump may have made thanks to lower-than-expected inflation rates, this upcoming deadline for the reciprocals creates a major dilemma for Trump: either he “chickens out” again, as one columnist jokingly suggested, or he actually imposes these hefty duties. The Fourth of July celebrations this weekend may not be as expensive as once feared – will Americans be able to say the same for Labor Day, Thanksgiving, or even Christmas?The Graphic Truth: What’s behind American inflation?
US inflation rates have finally started to relax over the past 12 months: Prices rose at an annual rate of 2.3% in April, within touching distance of the Federal Reserve’s 2% target. This chart shows what product categories fed the inflation surge in 2022 — and its subsequent slowdown.
The recent drop in inflation rates is in large part thanks to plateauing transport costs, which spiked in 2021 and 2022 amid global supply-chain issues and Russia’s invasion of Ukraine. However, housing costs have continued to rise at a fairly steady pace, a symptom of the current US property crunch.
People bathe in the sun under parasols on a beach near the city of Larnaca, Cyprus, on August 11, 2024.
HARD NUMBERS: UAE carries Cyprus’ water, China toughens trade stance, Trump admin ignores court order, Americans expect price hikes, Germany’s economy remains stagnant, South Korea’s ex-leader indicted
15,000: The United Arab Emirates is literally helping Cyprus navigate troubled waters by providing portable desalination plants to the Mediterranean island free of charge so it can supply enough water to the deluge of tourists set to visit this summer. The Emirati nation’s plants will reportedly produce 15,000 cubic meters of potable water per day. It’s unclear if the UAE is receiving anything in return – it seems happy to go with the flow.
$582 billion: China informed the United States that it must “completely cancel all unilateral tariff measures” if it hopes to begin talks over trade. Beijing had previously said that it was open to talks, without preconditions. However, on Friday, Reuters reported that Beijing would exempt some critical goods from its 125% and is asking its firms to identify imports they need to continue functioning --- though it stopped short of publicly making the first move in trade war de-escalation. Total trade between the two superpowers was $582 billion in 2024, but the sweeping new tariffs that each has slapped on the other is likely to force this number down.
2: In the latest clash between the Trump administration and the courts on immigration, the White House moved a Venezuelan man from Pennsylvania to Texas — possibly preparing to deport him — right after a judge ruled that the government couldn’t remove him from the commonwealth or the United States. The man, who wasn’t formally named, had been employed as a construction worker in Philadelphia for two months before his arrest in February on suspicion of being part of Venezuela’s Tren de Aragua gang.
77%: The price isn’t right: 77% of Americans expect President Donald Trump’s tariff plan to raise consumer prices, with 47% believing that consumer prices will “increase a lot,” according to an AP-NORC poll. Despite those numbers, 4 in 10 Americans still approve of Trump’s handling of the economy and trade negotiations.
0: In the wake of Trump’s tariffs, Germany announced on Thursday it was downgrading its predicted economic growth rate — the economy depends heavily on manufacturing exports — from 0.3% to 0.0%. If the prediction holds, 2025 will be the third straight year of stagnation for Europe’s largest economy.
217 million: Former South Korean President Moon Jae-in was indicted on Thursday on bribery charges, alleging that he received 217 million won ($151,705) from the founder of a low-cost airline. No, it wasn’t Turkish Airlines but Eastar Jet.Line graphs comparing inflation to wages in the US and Canada.
Graphic Truth: Canada is winning the real wage war
But north of the border, it’s been a different story in the last few years, as Canadian wages have started to outpace inflation — helped, in part, by Ottawa’s decision to reestablish a federal minimum wage and index it to price growth. That hourly wage currently stands at $17.75. The US federal minimum wage, meanwhile, has been stuck at $7.25 per hour since 2009, though some states have set wages higher than that.
With Canada’s unemployment at 6.7%, the country’s labor market is far from perfect, but the recent real-wage growth there is bound to make some of its southern neighbors envious. These charts take a look at the recent relationship between nominal wages and inflation in both the US and Canada.
President Donald Trump addresses a joint session of Congress at the U.S. Capitol on March 04, 2025. Vice President JD Vance and Speaker of the House Mike Johnson applaud behind him.
Trump lays out a bold vision for second term
Six weeks into Donald Trump’s second presidency, he delivered his first major address. Speaking before a joint session of Congress late Tuesday, he highlighted some of the nearly 100 executive orders he has signed, touted cuts to the federal government, and outlined his bold vision for reshaping the US over the next four years.
Trump began by focusing on culture war issues, including the elimination of DEI programs and a ban on transgender athletes in competition. He tied these topics to the Department of Government Efficiency’s mission to reduce government waste, listing what he called “woke” programs that had been defunded. He also emphasized his administration’s success in strengthening US border security and immigration enforcement, pointing to a 25-year low in border crossings during his first month in office and the passage of multiple immigration bills through Congress.
Trump blamed the country’s economic struggles — such as high grocery prices and egg shortages — on Joe Biden’s administration. As for his approach, Trump touted populist economic policies, including eliminating taxes on tips, overtime pay, Social Security benefits, and car payments for US-made vehicles. He also urged Congress to extend his 2017 tax cuts and assured that DOGE initiatives would save taxpayers money.
Trump’s speech notably came amid market turmoil following his newly imposed tariffs on Canada, Mexico, and China. On Monday, the S&P 500 dropped 1.2%, wiping out its gains since Election Day, while the Nasdaq declined 0.4%. Trump announced additional reciprocal tariffs set to take effect on April 2, acknowledging they could cause short-term economic pain and urging American farmers to “bear with me.” During his first term, Trump secured tariff relief from China for the agriculture industry ahead of the midterms.
On Ukraine, Trump spoke at length about brokering a peace deal, reading a letter from President Volodymyr Zelensky stating that Ukraine was ready to negotiate and commit to a minerals agreement. He criticized Europe for spending more on Russian gas than on Ukraine’s defense and emphasized the importance of engaging both sides in diplomacy. “If you want to end wars, you have to talk to both sides,” he said.
Trump also argued that the US needed Greenland for “international world security.” He extended an open invitation, saying Greenland would be welcomed into the US “if you choose,” before adding moments later, “I think we’re going to get it one way or the other.”
What about the Democrats? Partisan tensions flared from the start of the speech. Still, Democratic boos were quickly subdued when Rep. Al Green from Texas was removed from the chamber after repeatedly shouting, “You have no mandate to cut Medicaid!” at the president. Democratic protests then became more restrained. Many members silently expressed their opposition through their attire — women dressed in pink, while men wore blue and yellow ties in support of Ukraine. Later, a handful of members walked out, revealing black t-shirts emblazoned with the word “RESIST.”
Following Trump’s speech, Democrats made their appeal to the American people. Michigan Sen. Elissa Slotkin called for a return to bipartisanship and outlined key policy priorities, including lowering costs, strengthening national security – both at the border and abroad – and defending American democracy. She criticized Trump for prioritizing billionaires and for abandoning US allies in favor of autocrats.
Slotkin’s speech was concise, though likely delivered after many Americans had already turned off their televisions. Still, it marked the first time Democrats had formally outlined a party platform since losing the White House and both chambers of Congress in November.
US President Donald Trump speaks during an executive order signing in the Oval Office of the White House in Washington, DC, on Feb. 10, 2025. He ordered a 25% tariff on steel and aluminum imports, escalating his efforts to protect politically important US industries with levies hitting some of the country's closest allies.
A Trump economy caution light begins to flash
US inflation rose to 3% in January, surpassing the expectations of many economists. This increase is driven at least in part by a sharp jump in egg prices, the result of an avian flu outbreak. But there may be other pressures at play that can create serious political challenges for President Donald Trump and two of his policy priorities.
Eurasia Group, our parent company, warned in its Top Risks report for 2025 that Trump’s use of tariffs would put upward pressure on the prices Americans pay for goods and services. When US consumers face fewer affordable options on many goods, the report warned, inflation will rise again, leaving interest rates higher and slowing growth.
But Trump’s immigration policy, which could deport up to 1 million people in 2025 and as many as five million over his four-year term, could be even more inflationary. Mass deportations, the report warns, “will shrink the US workforce, drive up wages and consumer prices, and reduce the productive capacity of the economy.”
If this forecast is correct, investors will put downward pressure on stock market performance in the coming months in anticipation that higher inflation will encourage the US Federal Reserve Bank to leave interest rates higher for longer — and perhaps even to raise rates late in 2025.
History shows that when inflation rises, stock prices fall, and interest rates are high, US presidents see a drop in their approval ratings. If the inflationary pressures reflected in January’s inflation numbers have staying power, and tariffs and deportations really do make inflation much worse and send Trump’s approval numbers south, will the president alter policy course on two of his signature campaign promises? That’s a question that will be watched closely by governments around the world.
How Biden’s presidency will be remembered
Jon Lieber, Eurasia Group's head of research and managing director for the firm's coverage of United States political and policy developments, shares his perspective on US politics from Washington, DC.
This is what we're watching in US Politics this week: One question that's going to be debated for a long time in the coming years is what is President Biden's legacy? I think there are a couple of things that he's going to be remembered for.
The first is the extraordinarily chaotic global environment over which he presided. Republicans will tie this back to the shambolic withdrawal from Afghanistan that President Biden presided over. But following that, you had the Russian invasion in Ukraine and the events of October 7th in the Middle East that led to the ongoing war there that is just now starting to look like it's settling down. But this is clearly going to be one of the background themes of any assessments of President Biden's legacy.
Biden's now one of four one-term presidents in the last 50 years, and one of the reasons that he lost was of course inflation. And inflation, you could argue was fueled by the pandemic or you could argue it was fueled by early actions taken by the Biden administration to spend a lot of money, perhaps more money than was necessary. But either way, the inflationary story of 2021 and 2022 is going to be remembered as one of his key legacies and one of the reasons that he lost reelection. Now that loss to Donald Trump, allowing probably one of the more controversial presidents in certainly recent American history, to come back into office and mount an unprecedented political comeback is also going to be part of Biden's legacy. Because of the fact that he decided that he was able to run even at his advanced age, that blocked out the Democrats from having an opportunity to hold a primary and then forced the Democrats to change horses midstream and move over to Kamala Harris in the middle of the election cycle, who of course lost to Trump. That is also going to be part of his legacy.
And it's unclear. Biden thinks, says it publicly, he could have won election if he just stayed in. He's 82 years old. He'd be the oldest president ever if he did, and there's obvious decline in his faculties over the course of the year. But more importantly, the American people really started to lose confidence in Biden as time went on this year. So not at all clear that he would've won that election or that any other Democrat could have won that election if there were a primary process. But his sticking around and the White House staff and other Democratic operatives that covered for the age-related decline that he was experiencing is also going to be a part of President Biden's election.
Probably one of the more consequential things I think he's going to end up having done over the longer term is increasing the US confrontation with China, particularly over technology policy. The world is at a critical juncture when it comes to the advanced semiconductors and artificial intelligence. And the wall that the Biden administration has been trying to erect around Chinese access to US advanced technologies is going to have ripple effects and repercussions for years to come. The Trump administration's likely to continue a lot of that, and this could potentially be an inflection point in 10 years time as we look back and look at the two different tech ecosystems that are being built out. A lot of that legacy is going to trace back to the Biden administration.
So that's a pretty complex, mixed legacy. The US doesn't have lot of one-term presidents in recent history. Most one-term presidents aren't remembered that fondly. Presidents like George H.W. Bush look a lot better in the long distance of history, whereas President Jimmy Carter who recently passed away still has a bit of a mixed legacy. And that's probably where Biden's going to end up.
- Biden sings his swan song at UNGA, urges support for Ukraine ›
- Will a lame-duck Biden be bold before Trump takes over? ›
- Gaza ceasefire likely as Biden and Trump both push ›
- Ian Bremmer on debate: A big loss for Biden ›
- Who will Trump’s team be? ›
- Trump’s Cabinet picks set up likely battle with GOP Senate ›
- Trump picks Trudeau critics for Cabinet ›
- What Donald Trump’s Cabinet picks mean for AI ›
- How a second Trump term could reshape global politics ›
Los Angeles City firemen spray water to protect houses threatened by a brush fire in Griffith Park, Los Angeles May 8, 2007. The fire broke out in the hills above Los Angeles forcing evacuation of the city's largest park and zoo. Local media reported that authorities have arrested an arson suspect who was badly burned.
Hard Numbers: LA faces more fires, Meta makes big cuts, US inflation ticks up, Zaijian TikTok
6 million: Fire officials in Southern California said over 6 million people are still in danger from four major fires burning in the hills around Los Angeles, with hot, dry winds expected to worsen conditions over the weekend. Herculean efforts from fire crews have contained large sections of the Palisades and Eaton fires, but they are racing against time to save as many lives and houses as possible in America’s second-largest metropolis.
5: Meta, the company behind Facebook and Instagram, says it will lay off 5% of staff this year, amounting to about 3,600 jobs. The announcement comes amid major policy changes at the social media giant, including the end of content moderation for the US and the replacement of its public policy chief with a prominent Republican.
2.9: US inflation rose from 2.7% in November to 2.9% in December, the third straight month of accelerating price hikes while rates remain well above their target levels. That said, underlying pressures of inflation appear to be easing, and analysts still believe the Federal Reserve will be able to proceed with planned interest rate cuts in 2025 – though how the Trump administration’s planned tariffs will skew plans is yet to be seen.
700,000: Have you paid your cat tax? You’ll need to share a cute pic of your favorite feline if you join the 700,000 TikTok users who have set up shop over at rival Chinese video streaming app Xiaohongshu, also known by its English name RedNote. (The literal translation, “Little Red Book” was also the nickname of the collection of Mao Zedong’s sayings that Red Guards used to justify atrocities during the Cultural Revolution). So far, the “refugees” have had a playful welcome, with Chinese netizens teaching the newcomers Mandarin and engaging in absurdist humor in exchange for coveted pet pics.