"Mutual Tariff Implementation to Raise US Consumer Prices by 2%P"

Paul Ashworth of Capital Economics Comments in Investor Memo

Analysis suggests that if the reciprocal tariffs announced by U.S. President Donald Trump are fully implemented, they could raise U.S. consumer prices by about 2 percentage points by the end of this year.

Paul Ashworth, Chief North America Economist at Capital Economics (CE), stated in a memo to investors that "the criteria used to assess (reciprocal) tariffs will include not only the tariff rates other countries impose on U.S. exports but also value-added tax (VAT)."

Earlier, on the 15th (local time), President Trump reaffirmed the decision to impose reciprocal tariffs in a post on his personal social media platform, Truth Social, writing, "We will treat countries that use much harsher VAT systems than tariffs similarly to those with tariffs on the U.S." He also stated that "non-monetary tariffs and trade barriers imposed to push our products out of their territories" would be considered in imposing reciprocal tariffs.

According to Ashworth, while the average tariff rate imposed by the U.S. on imports is 2.6% (weighted by trade volume), the top 15 countries by trade volume with the U.S. apply an average tariff rate of 6.7% on U.S. exports.

When VAT is added, reciprocal tariffs would result in tariffs of 29% on imports from India, 28% from Brazil, 25% from the European Union (EU), 23% from Mexico, and 19% from Canada.

Ashworth estimated that the average tariff rate on goods imported into the U.S. would rise from less than 3% currently to about 20%. He further estimated that this impact would raise U.S. consumer prices by approximately 2 percentage points by the end of this year.

Considering that the personal consumption expenditures (PCE) price index, a key inflation indicator emphasized by the U.S. central bank, the Federal Reserve (Fed), rose 2.6% in December last year, the PCE price index increase could reach 4.6% by the end of this year.