With a truce in the war, Trump resumes focus on tariff policies; understand
"Tariff" may be one of American President Donald Trump's favorite words. But since war with Iran broke out, it has rarely been part of their vocabulary.
With a fragile deal between the United States and Iran offering a path to ending the months-long war, tariffs are back on Trump's agenda. And the situation could deteriorate quickly.
On the eve of this week's G7 Summit in France, Trump threatened to impose a 100% tax on French wine if French President Emmanuel Macron did not abandon a 3% digital tax on services.
The tax is especially damaging to US tech giants such as Amazon, Alphabet, Apple and Meta.
"I asked him not to charge American companies, and if they do, I will have no choice but to charge a 100% tariff on all champagne and all wine coming from France," Trump told the New York Post in an interview published on Monday.
Trump has been making these types of threats since the tax was introduced in 2019. Before his most recent warning, he threatened in January to introduce a 200% tariff on French wine and champagne after Macron signaled he would not join Trump's "Board of Peace" on Gaza.
But for a variety of reasons, Trump did not follow through on these threats.
The White House has denied any connection between the Iran deal and Trump's tariff warning regarding France.
"There is no change in direction here; the president is responding to an issue on which he has clearly already taken a position," White House spokesman Kush Desai told CNN in a statement.
In addition to French wines and Champagne, which risk provoking broader retaliation from the European Union, Trump has also promised to increase tariffs on EU cars, claiming the trading bloc violated a deal reached last summer.
In addition, the USTR recently proposed tariffs starting at 12.5% on all products from Japan, China and India due to alleged concerns about forced labor.
These tariffs are expected to take effect after a temporary 10% import tax expires next month.
The economy is still recovering from the latest round of tariffs
Trump introduced sweeping tariffs last April, paralyzing companies and freezing their decision-making and hiring. Most of the fees were later struck down by the Supreme Court.
Now, more than a year later, the effects of the tariffs on the labor market are just beginning to dissipate
Employers who had been hesitant to hire more workers due to the uncertain business climate have started hiring again: The U.S. economy has added an average of 188,000 jobs per month over the past three months - a far cry from last year, when fewer than 10,000 jobs were added each month.
But annual inflation, which stood at just 2.4% before the US-Israel war with Iran, soared to 4.2% last month, the highest rate in three years, according to the Consumer Price Index.
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On a monthly basis, prices rose 0.5%, with the higher cost of energy accounting for 60% of the increase.
So the prospect of a series of new import tariffs comes at an especially precarious time.
But economists have found comfort in a measure of underlying inflation that excludes food and energy prices. This indicator, known as "core" inflation, registered 0.2% on a monthly basis and 2.9% in May.
This indicates that - at least for now - higher energy prices have generally not significantly raised the prices of other goods and services since the start of the war.
This is not always the case, given that energy is one of the main expenses for companies and, when prices rise, they often pass this cost on to consumers.
There is still no verdict on this, even if the Strait of Hormuz returns to pre-war tanker traffic.
"We believe the U.S. faces a persistent inflation problem, in part because of the conflict in the Middle East but also because of the entrenchment of pandemic-era inflation in services prices," economists at BNP Paribas wrote in a note last week.
Source: CNN