EU-US Trade Contract: What impact will it have on consumers and businesses?
The US-EU trade agreement is one of the biggest in history, but many argue that it places a heavy burden on the European economy.
No Brands – News Value
President Donald Trump’s world trade war once again distorted the broadest snapshot of the US economy. This time I made a brighter picture.
The economy grew steadily in the second quarter, but forecasters tracked the show to a reversal of a tariff-related import surge that saw its output shrink earlier this year.
Consumer spending and business investments are expected to rise modestly, with growth expected to be even slower later this year as much of Trump’s import fees filter out to retail prices.
Gross domestic product, the value of all goods and services made in the United States, grew at a seasonally adjusted annual rate of 3% between April and June, the Commerce Department said on July 30. Economists surveyed by Bloomberg predicted a 2.4% increase.
Trump boasted about his post performance on the True Society, saying the Federal Reserve, which meets Wednesday at 2pm, should cut interest rates.
“2Q GDP just goes out: 3%, much better than expected! “Too slow” needs to lower the rate. There is no inflation! Buy it for people. Trump said.
However, the rate is expected to remain stable as the Fed awaits the impact of Trump’s tariffs on inflation. And a strong GDP gain is likely to bolster the Fed’s plan to withstand fees rather than undermine it.
Furthermore, the increase in economic output was artificially driven by a sharp decline in imports, just as a 0.5% drop in GDP in the first three months of the year (the first contraction of the economy in three years) was rooted in a historic surge in foreign shipments.
With Trump’s double-digit tariffs looming, American retailers and manufacturers competed to order foreign goods early in the year before taxation came into effect. It led to an unprecedented flood of imports. This must be subtracted from GDP (products purchased by consumers, businesses and public sector).
As these purchases moved forward, businesses did not have to order many items from other countries in the last quarter, imports plummeted by 30.3%, turning a 37.9% rise, damping output earlier and strengthening US growth. As a result, these foreign shipments added 5.2% points to their growth after deducting 4.7 points from January to March.
A clearer measure of economic health, which removes trade, inventory and government spending, which is gaining consumers and business spending, but called final sales to private domestic buyers, fell 1.2% from 1.9% in the first quarter.
Another way to measure underlying growth is to average outcomes for the first and second quarters, Pantheon Macroeconomics said. This has led to the economy growing just 1.2% in the first half of 2025, down from its near 3% pace in the past two years.
“Due to weak fundamental growth in the second quarter, we took a material step-down in the first half of this year compared to 2024,” Pantheon Macroeconomics economist Oliver Allen wrote in a note to our clients.
Is the economy going well now?
Big picture: Forecasters hope that the economy will slow down in the coming months as Trump’s tariffs rekindle inflation and SAP consumer purchasing power. Economists forecast growth of less than 1% in both the third and fourth quarters, according to a survey by the Wolters Kluwer Blue Chip Economic Indicator.
According to median estimates from the Bloomberg survey, forecasters will announce on August 1 that the Department of Labor added 109,000 jobs in July. That’s down from 147,000 in June, to an average of 130,000 so far this year.
In recent weeks, the White House has attacked trade transactions with countries such as the UK, the European Union, Indonesia, Vietnam and Japan, but US tariff rates have risen by around 20% from under 3% at the start of the year. It would probably push annual inflation from 2.7% to 3% by the end of the year, she said. Without obligation, economists believe inflation has probably returned to its 2% Fed target.
Additional tariffs to further increase inflation could be in effect by the August 1 deadline if administrative authorities do not reach transactions with dozens of countries.
When can we expect the Fed to lower interest rates?
Economists do not expect to move the needle into the Federal Reserve decision on interest rates, which is expected to be released at 2pm.
The Fed is expected to remain stable in the fifth consecutive meeting despite sustained pressure from Trump, despite the futures market bets on interest rate cuts in mid-September.
Typically, robust GDP figures can make the Fed even less likely to lower rates. The Fed will shave fees to support a weak economy, and raise or keep rates high to combat inflation. However, as data is once again skewed by the effects of tariffs, authorities could put low weight on the numbers.
For now, Fed officials are focusing on maintaining a waiting approach to rate reductions when assessing how much inflation the import fees are boosting in the coming months.
Here’s how parts of the economy changed in the second quarter:
Consumer spending
Consumer spending rose 1.4%, continuing to grow just 0.5% in the first quarter, half the pace of last year. Consumption accounts for 70% of economic activity.
This year, Americans’ outlook has been darker this year as the heavy tariff outlook sparked inflationary concerns and the slower labor market tamped down revenue profits.
Business investments will rise slightly
Business investments rose 1.9% after a surge of 10.3% in the last quarter.
The company’s purchases of computers, delivery trucks, factory machinery and other equipment have now reached a rather healthy 4.8%.
However, spending on buildings, oil rigs and other structures plummeted 10.3%.
Business stockpile is a huge resistance to growth
As imports fell, businesses added significantly less to their inventory, with stockpiling down 3.2 percentage points from growth.
Homes begin and renovations decrease
Home construction and renovations fell by 4.6%, marking the fourth decline in the past five months.
Some housing investments have been slowing as builders are worried that tariffs will significantly increase the costs of wood, steel, aluminum and other building materials.
Also, high mortgage fees — the by-product of inflation and the Fed rate hike — have discouraged many potential home buyers.
Government spending has a higher edge
Government spending rose just 0.4%. Federal spending fell 3.7% as government efficiency (DOGE) continued to significantly reduce budget cuts and layoffs.
State and local spending rose 3%.
Contribution: Joey Garrison
