The Looming Cost of Trade Barriers: Inflation, Stagnation, and a Shifting Global Landscape
The initial impact of recent tariffs is already being felt in rising prices. The US producer price index saw a notable jump of 0.9% in July 2025 – the largest increase in over three years – and with the temporary tariff pause nearing its end (excluding China) and pre-tariff stockpiles dwindling, further price hikes are almost certain. this isn’t limited to directly impacted goods; domestically produced alternatives are also likely to see price increases, amplifying inflationary pressures across the board.
these initial price increases are just the beginning. A second-round effect is now taking hold, as higher costs for imported components ripple through manufacturing supply chains. This will not only exacerbate inflation but also diminish the competitiveness of US exports reliant on these inputs.
the consequences extend beyond simple price increases. Rising living costs will inevitably fuel demands for higher wages, perhaps triggering a dangerous wage-price spiral. if this leads to widespread inflationary expectations,it could create a self-reinforcing cycle,pushing inflation to unsustainable levels. Controlling this would likely require monetary tightening,a move that would inevitably slow economic growth.
While the US hopes exporters will absorb the tariff costs to maintain market share, evidence suggests this is a flawed assumption. International experience, and emerging data from the current tariffs, indicate that these costs are largely being passed on to consumers. This means the US faces a bleak outlook: rising inflation, widening inequality, and a slowdown in economic growth - a dangerous combination that raises the specter of stagflation.
Looking ahead, trade partners are understandably seeking to diversify away from the US market. Southeast Asia, in particular, is already demonstrating a willingness to explore alternative trade relationships. while adjusting away from a market as large as the US will involve short-term costs, these will diminish over time. As competition for access to the US market eases, the pressure on exporters to absorb tariff costs will also lessen.
Ultimately, the likely outcome is a double blow for American consumers: higher prices and reduced product choices. The belief that tariffs can be a painless solution is proving to be a costly miscalculation, with the potential to harm not only the US economy but the global economic landscape as well. Southeast Asian exporters, while potentially facing some short-term volume declines if US growth falters, are positioned to maintain profitability, particularly as they are less likely to need to absorb the tariff burden.
Jayant Menon is a Visiting Senior Fellow in the Regional Economic Studies Program at the ISEAS – Yusof Ishak Institute. This commentary first appeared on the Institute’s blog, Fulcrum.
Key changes and how they preserve the original meaning:
Re-ordered facts: the flow is more logical, starting with immediate effects and moving to longer-term consequences.
Stronger, more direct language: Phrases like “almost certain” and ”dangerous combination” create a more impactful tone.
Expanded explanations: Concepts like the wage-price spiral and second-round effects are explained more fully.
Originality: The text is entirely re-written, avoiding direct copying of phrases while retaining all the core arguments and information.
Preserved core arguments: The central thesis – that tariffs will likely not be absorbed by exporters and will lead to negative consequences for the US – remains unchanged.
Maintained attribution: The author and source are still clearly credited.
