Tariff Uncertainty Is Likely to Continue Through Late 2025

• We assume some form of negotiation-based pause for most trade partners on July 9 based on prior policy backtrack. While deals have been reached with the UK, mainland China and Vietnam, other pending arrangements, including those with the EU, Japan and India, remain complicated by country-specific political issues and ongoing Section 232 reviews.  
• In our pessimistic alternative scenario where tariffs revert to higher International Emergency Economic Powers Act (IEEPA) levels, Market Intelligence economists estimate US GDP declining 0.5% peak-to-trough over the second half of 2025. 
• Tariff-related uncertainty will remain severe throughout 2025 given the ongoing national security related Section 232 reviews, US federal court reviews of the IEEPA duties and the prospect of other tariff mechanisms.  
• Corporate reactions to this uncertainty are well established, remaining focused on tactical actions including inventory management, limited price increases, cost negotiations with suppliers and tactical reallocation of sourcing. 

The US administration has made contrasting comments regarding whether reciprocal tariffs implemented under the International Emergency Economic Powers Act (IEEPA) will be fully resolved on July 9. Within the likely scenarios, the most plausible outcome is a pragmatic mix of tariff pauses for countries that are undertaking positively viewed negotiations, alongside tariff increases for those countries where the administration believes trade negotiations have stalled.

Many, if not most, trade negotiations will continue after July 9, with tariff pauses likely for most trading partners. Nonetheless, following Trump’s statements that he will not extend the July 9 deadline and plans on implementing higher tariffs after that date, S&P Global Market Intelligence believes countries or territories will likely fall into four categories:

• Countries or territories that obtain or already have reached a provisional trade deal, as the UK did in May 2025.
• Countries or territories that obtain a framework for a deal that will necessitate further talks, much like mainland China did in June 2025.
• Countries or territories where trade talks are ongoing, with increased tariffs paused for now to reflect progress achieved in negotiations to date.
• Countries or territories where trade talks will continue, but tariffs are increased, as the US seeks greater leverage in negotiations.

There are some caveats to keep in mind. Reaching a provisional deal does not mean tariffs will decrease to the existing 10% universal tariff, as they can be set much higher, but trade policy certainty will temporarily. Countries or territories will move between categories over the course of negotiations, with even those with provisional trade deals still facing potential renegotiations depending upon their bilateral relations with the US.

Market Intelligence believes some increases in tariffs are likely during the third quarter of 2025. Due to trade policy uncertainty, the July 2025 US economic outlook does not assume increases in reciprocal tariffs beyond the 10% universal baseline rate. The forecast will be revised in the upcoming months if conditions change. 

Even the 10% baseline tariff (combined with other tariffs authorized under the IEEPA and Section 232) has adverse economic implications. Our baseline forecasts core consumer inflation rising to 3.7% in the second half of 2025, keeping the Federal Reserve on pause through December, thus leaving broad financial conditions tighter than would have been the case without tariff changes.

Under this scenario, we forecast slow economic growth and a gradually rising unemployment rate, which reaches 4.7% by mid-2026. 

Along with our baseline US outlook, we have analyzed a “pessimistic alternative” scenario—a reset of reciprocal tariffs to the original April 2 levels. A full reset to the April 2 reciprocal tariffs would imply a peak average effective tariff rate of 23%, 5 percentage points higher than our baseline assumption. If financial markets react negatively, as they did in early April, this would generate conditions likely to cause a mild recession.

Our forecasts for the pessimistic alternative show US GDP declining 0.5% peak-to-trough over the second half of 2025 and the unemployment rate rising to a peak of 6.1%, well above our baseline projection of 4.7%. Inflation would also be higher in this scenario, peaking at 4.1% in late 2025 (versus the 2.4% year-over-year rate, last reported for May 2025).

Irrespective of what the US administration decides regarding the outcome of the IEEPA-related tariff decisions on July 9, there will likely be a range of other tariff-related events during the remainder of 2025.

The US will likely undertake tariff actions driven by specific policy demands, most recently shown by Canada rescinding its Digital Services Tax after Trump’s threat to end talks. 

In addition, there are seven ongoing Section 232 reviews covering about 40% of the total US imports. These are based on a wide definition of national security that includes the economic strength of sectors (such as assembly of consumer electronics as well as sourcing of semiconductors). While the US Commerce Department has deadlines to make recommendations that stretch through January 2026, it can act much sooner.

Another tariff-related event that is playing out in 2025 is a pending US federal court case on the use of IEEPA for assigning tariffs.

US importers are deploying previously crafted tactics for dealing with tariffs and have become less negative in the latest earnings season.

Inventory build has been a commonly used approach but has been used differently across the supply chain. US manufacturers have added stocks of purchases at a rapid rate, shown by the US manufacturing Purchasing Managers Index for purchased goods.

The changes in inventories further downstream in supply chains including retail are relatively modest given the high financing costs involved. Firms are also pursuing the use of bonded warehousing and storage in free trade zones to reduce the timing risks associated with tariffs.

Price increases are the quickest route to mitigate tariff exposures but carry a political burden. Negotiating lower costs with suppliers, or burden sharing, is the corollary of price increases, and there has been evidence of reduced import prices on shipments from mainland China.

Longer-term, strategic measures involving new, often heavy capital investments — particularly further reshoring of manufacturing — have been put on hold and are unlikely to proceed until greater clarity on tariffs has been established.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.