Macroeconomic Update: Tariff Impact Clearer in H2 2025

By Phil Mackintosh, Senior Vice President, Chief Economist at Nasdaq and Michael Normyle, Senior Director, Economic Research at Nasdaq

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Economy at a Glance

Figure 1: Key Indicators and Trends

Source: Nasdaq Economic Research, FactSet

Despite Headlines, Tariffs Had Limited Economic Impact in H1 2025

This year has been dominated by tariff news. Since February, there’s been multiple tariff announcements (Figure 2). Initially, tariffs created uncertainty for consumers and businesses. But lately, there is increased clarity following trade deals made with the UK, EU, Vietnam, Japan, and other countries.

Specifically, the baseline global rate appears to be 15% for countries with which the U.S. runs a trade deficit. This suggests that the effective tariff rate on U.S. imports will be approximately 17%, taking into account sectoral tariffs and individual countries facing higher rates. The increase is nearly 15 percentage points this year, which pushes the tariff rate to its highest level in nearly 100 years (Figure 2).

Figure 2: Effective U.S. Global Tariff Rate (%)

Sources: Financial Times, Yale Budget Lab, U.S. Census Bureau

Many consumers and businesses feared that tariffs would be a stagflationary shock, increasing inflation and slowing economic growth. Yet, when looking at the data, there weren’t many signs of this for months. That is likely because:

• Companies imported a record amount of goods in Q1 2025, before (most) tariffs kicked in.
• Many tariffs have been delayed or negotiated lower.

Only recently have consumers and businesses started to see signs of tariffs in the data—initial indicators of what to expect in H2 2025.

Tariffs Start to Increase Inflation as Import-Dependent Goods Prices Rise

Inflation started rising in June 2025, largely because companies started passing on tariff costs to consumers. Figure 3 shows prices rising more as the proportion of their imports composition increased, which means they are more exposed to tariffs.

Goods like appliances (+1.9% m/m), sports equipment (+1.8%), and toys (+1.8%) saw much higher inflation than core goods overall (+0.2%) in June 2025 and pushed annual inflation up to 2.9% p.a. This increase in inflation— above the Federal Reserve’s (the Fed’s) 2% target—also gave support to the Fed’s ‘wait-and-see’ approach to policy, even as other major central banks have continued to cut rates.

Figure 3: Prices Rise for Import-Dependent Goods

Source: Pantheon Macroeconomics

Tariffs Start to Impact Spending on Goods Most Exposed to Tariffs

Higher goods prices also started to impact consumer demand in June 2025. Although headline consumer spending rose 0.6% in from May to June, it fell 0.1% for furniture and electronics and appliance stores, which are among the categories most exposed to tariff-related price increases (Figure 4). 

This suggests consumers are starting to demonstrate some sensitivity to higher prices—and that’s considering only 60% of tariffs being passed on to consumers since February 2025, according to Goldman Sachs’ estimates. As tariff costs are increasingly passed through, they should become a bigger headwind to spending in the coming months. 

Figure 4: Sales Fall for U.S. Retail Categories Exposed to Tariff Inflation

Source: Oxford Economics

Tariffs Squeeze Margins as Goods Sector Earnings Growth Declines in Q2 2025

There is evidence that businesses have absorbed a significant share of the tariff cost. For example, on GM’s earnings calls, the company said it paid over $1 billion in tariffs in Q2 2025 (without widespread price hikes to offset those costs). In addition, Nike estimated that tariffs would reduce the company’s profits by $1 billion this year. Deutsche Bank estimated tariffs reduced Q2 2025 S&P 500 earnings by 2 percentage points.

Of course, tariff exposure is not uniform across industries. Goods sectors are much more exposed than services sectors, which is observed in Q2 2025 earnings estimates. All services-focused sectors (less tariff exposure) are projected to see positive earnings growth, while almost all goods-heavy industries (more tariff exposure) are expected to see zero or negative earnings growth (Figure 5).

Combined, goods sectors in the S&P 500 are on pace for negative 2.5% p.a. earnings growth, while services sectors are on track for +16% p.a. growth. In addition, the Nasdaq-100®, which has more of a services tilt and benefits from AI spending, is on pace for +32% p.a. earnings growth in Q2.

Figure 5: Tariffs Negatively Impact Goods Sector Earnings in Q2

Sources: Nasdaq Economic Research, FactSet

Market at Record Highs as Economy Resilient, Tariffs Lower than Feared, and Earnings Still Growing

U.S. stocks are around record highs, defying the apparent drag from tariffs. A few contributing factors include:

• The underlying economy has been resilient so far. Real GDP bounced back in Q2 2025 to +3.0% growth, unemployment continues to hover around its lowest rate in over half a century, and inflation remains relatively subdued, especially compared to Covid’s 9% p.a. peak inflation.
• Despite this drag from tariffs, it is not as bad as initially feared. After Liberation Day, the effective tariff rate was estimated to be about 23% (Figure 2). That’s come down about six percentage points already as deals have been made to lower tariff rates on major trading partners, like China, the EU, Japan, and Vietnam (Figure 6). In response, companies have been recalibrating their expectations. For example, Johnson & Johnson reduced its tariff cost forecast by 50% to $200 million, and 3M reduced the EPS hit to 10 cents from a previous range of 20 to 40 cents.
• Earnings continue to grow. Coming into Q2 2025 earnings season, analysts projected +5% p.a. earnings growth for the S&P 500. However, FactSet analysis showed that, since roughly 75% of companies typically beat their earnings estimates, an average pace of beats in Q2 would increase earnings to +10% p.a. (Figure 7). That has been observed with the S&P 500 now estimated to see +10% p.a. earnings growth in Q2 2025. Analysts expect continued positive earnings growth into 2026, which should help support stock prices.

Figure 6: Effective Tariff Rate Lowers After Deals Made

Sources: Nasdaq Economic Research, U.S. Census Bureau

Figure 7: S&P 500 Earnings Are Beating Estimates

Sources: Nasdaq Economic Research, FactSet, Deutsche Bank

5 Questions Board Members Should Ask Today

1. How does AI impact our entry-level hiring and employee development?
2. If the Fed delays rate cuts again, what does that mean for our business?
3. Does more certain trade policy (with global tariffs around 15%) change any of our capex plans?
4. What contingencies do we need in four years if there is a reversal in trade and/or tax policy?
5. Even if we have limited tariff exposure, does it provide a pricing opportunity for our business?

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The views and opinions expressed herein are the views and opinions of the authors and do not necessarily reflect those of Nasdaq, Inc.