[2025-26 US Economic Outlook] US Economy to Slow This Year, Recover Next Year ~Tariffs Ain't Constructive Option: Research Report No.2025-004

Overview

The Japan Research Institute has released "[2025-26 US Economic Outlook] US Economy to Slow This Year, Recover Next Year ~Tariffs Ain't Constructive Option: Research Report No.2025-004". This analytical report focuses on the impact of the Trump administration's tariff policies on the US economy and provides an outlook for the US economy in 2025-26. ## Key Points ### 1. Report Overview - **Publisher**: Japan Research Institute - **Publication Date**: July 1, 2025 - **Series**: Research Report No.2025-004 - **Analysis Theme**: US economic short-term outlook and impact assessment of tariff policies ### 2. Economic Growth Rate Forecast - **2025**: Real GDP growth rate +1.9% (deceleration from previous year) - **2026**: Real GDP growth rate +2.5% (return to recovery) - **2024 Actual**: Scenario of deceleration from +2.8% followed by re-acceleration - **Potential Growth Rate**: Around 2% ### 3. Factors for Economic Slowdown in 2025 - **Delayed Effects of Monetary Tightening**: - Cumulative effects of past rate hikes intensifying - Constraints on household consumption and business capital investment - Economic activity slowing due to credit contraction - **Impact of Trump Tariffs**: - Price increases due to additional tariffs on China - Decline in real purchasing power - Supply chain disruptions - **Policy Uncertainty**: - Postponement of corporate investment decisions - Suppression of employment expansion - Cautious inventory investment ### 4. Detailed Impact Analysis of Tariff Policies - **Implemented Tariff Measures**: - February 4, 2025: 10% additional tariffs on China enacted - Canada/Mexico: 25% tariffs postponed for one month - **Quantitative Economic Impact**: - US average tariff rate: +1.4 percentage points increase - Goods prices: +0.6% increase - Inflation rate: +2.3 percentage points upward revision - GDP growth rate: -0.9 percentage points downward pressure - **Global Economic Spillover**: World GDP growth rate -1.1 percentage points decline ### 5. Economic Recovery Scenario for 2026 - **Drivers of Recovery**: - Normalization of financial conditions - Full-scale AI-related investment - Improvement in employment and income conditions - Recovery in personal consumption - **Capital Investment Outlook**: - Technology sector-led investment expansion - Acceleration of productivity improvement investments - Continuation of green investments ### 6. Monetary Policy and Inflation Outlook - **Fed Policy Stance**: - Expected to stop rate cuts by spring 2025 - Policy rate maintained around 4% - Continued inflation vigilance - **Inflation Trends**: - Core PCE price index: Remaining high around 3% - Cost-push pressure from tariffs - Persistent wage increase pressure - **Long-term Interest Rate Outlook**: +1.9% upward risk due to inflation concerns ### 7. Major Risk Factors - **Downside Risks**: - Introduction of Universal Baseline Tariff (uniform tariff on all items) - Escalation of trade war - Rapid tightening of immigration policies - Financial market turmoil due to debt ceiling issues - **Upside Factors**: - Productivity improvement through AI revolution - Early implementation of tax cuts - Investment promotion through deregulation ### 8. Sector-specific Impacts - **Manufacturing**: Hit by increased import costs due to tariffs - **Retail**: Sales decline due to reduced consumer purchasing power - **Technology**: AI investment remains strong but uncertainty due to China regulations - **Finance**: Both profit opportunities and credit risks coexist in prolonged high-interest environment ### 9. Policy Recommendations - **Reconsideration of Tariff Policy**: - Gradual reduction of protectionist measures - Coordinated approach with allies - Ensuring consistency with WTO rules - **Fiscal Policy**: - Productivity improvement through infrastructure investment - Strengthening R&D support - Expansion of middle-class support measures - **Structural Reforms**: - Improving labor market flexibility - Enhancing education and vocational training - Innovation promotion measures This report, as indicated by the subtitle "Tariffs Ain't Constructive Option," provides a detailed analysis of the negative impacts of the Trump administration's protectionist trade policies on the US economy and calls for the need for more constructive policy approaches.