20 May, 2025 by Claire Jones in Washington, Sam Fleming and Joseph Cotterill in London and Gregory Meyer in New York
For Stonemaier Games, it will be a roll of the dice whether the US-China trade truce can save Christmas.
President Donald Trump’s deal with Beijing last week came just in time for the tabletop game publisher based in St Louis, Missouri, to plan orders for year’s end with its Shenzhen-based supplier at reduced tariff rates.
But the holiday production run will still be “much more modest than usual”, says Jamey Stegmaier, head of the privately owned company that produces strategy games such as Wingspan. “There’s too much uncertainty.”
The company has filed a lawsuit with 10 other small businesses to challenge Trump’s authority to impose tariffs. “There was no due process, just an agent of chaos raising tariffs from 20 per cent to 145 per cent in the span of one week,” Stegmaier adds.
On Wall Street, the memory of “liberation day” is fast receding, with the benchmark S&P 500 soaring back to near-record levels this year having recorded heavy losses after the disorder of April 2.
But for Main Street, the pain is set to endure, with the president’s haphazard approach to overhauling the global trading system harming confidence in an economy it was designed to help.
While April’s consumer price index rose less than expected, most economists believe the cost of goods will soon increase. Diane Swonk, chief economist at KPMG US, says last month’s reading could be “the last subdued inflation print for a while”.
And the trade tensions are not over yet. Another cliff edge in the president’s trade policy — a fresh 90-day deadline for talks with China after which tariffs could be pushed up again — has added to a climate of uncertainty.
“The market has overbought the deal,” says Steve Hanke, a Johns Hopkins University economist who worked as an adviser to Ronald Reagan. “Trump still thinks he’s running Trump Enterprises, not the US economy.”
While the détente has cut the chances of a serious recession, the US president’s handling of the trade war could continue to cast a shadow for the rest of 2025, unwinding years of stellar growth and raising the prospect of a bout of stagflation that would leave policymakers at the Federal Reserve in a tough position.
Concerns have been intensified by the decision of Moody’s to strip the US of its triple A credit rating, as it warned federal deficits will widen to almost 9 per cent of GDP by 2035, up from 6.4 per cent last year.
The anxiety extends to every economy tied to the US. Valdis Dombrovskis, the EU’s economics commissioner, tells the FT the global trade war has had “quite a sizeable negative impact” on its own forecasts, which revealed a sharp downgrade to the global growth outlook. It “creates negative confidence effects which affect first and foremost investment decisions”.
The US-China deal “undid a decent amount of the damage”, says Jason Furman, economist at Harvard University who worked in Barack Obama’s Council of Economic Advisers. “But we’re still going to get a bunch of inflation, we’re still going to get slower growth. And we still don’t know how this play is going to end.”
The relief among global investors following US Treasury secretary Scott Bessent’s agreement with Chinese vice-premier He Lifeng in Geneva a week ago is understandable.
At its height, the chaos pushed the effective US tariff rate at close to 26.8 per cent — the highest since 1903, according to the Yale Budget Lab, and ushered in a month-long freeze in US-China trade.
A collapse in transpacific shipping volumes led retailers to warn of empty shelves — and the president to tell US children to content themselves with “two dolls instead of 30” this festive season.
During the first week of May, the Port of Los Angeles saw a 30 per cent decline in imports as fears over the Trump administration’s tariff policies chilled trade. Gene Seroka, the port’s executive director, forecast higher costs for US consumers for coffee, avocados, and bananas.
US companies responded by throttling production.
Church & Dwight, makers of Arm & Hammer baking soda and Trojan condoms, said it would sell or shut down its Flawless hair remover, Spinbrush electric toothbrush and Waterpik showerhead businesses to mitigate a “significant portion” of its exposure to tariffs, which it estimated at $190mn over the next 12 months.
Even longtime supporters of Trump’s pro-US manufacturing policies were rattled.
“On January 1, I felt good. Trump had a pro-business, pro-manufacturing plan and I was positive,” says Harry Moser, president of the Reshoring Initiative, an organisation that supports US companies’ efforts to bring production back home. “On April 2, I felt he had complicated the issue and gone way too high on most of the countries, including our allies.”
At meetings of finance ministers in Washington last month, Bessent began attempts to steer the US administration towards a détente. The Treasury secretary tried to reassure his counterparts the period of peak instability had passed, participants said.
That culminated in the agreement that averted a hard decoupling of the Chinese and US economies as they slashed respective tariffs by 115 percentage points for 90 days. Hopes for trade pacts with other countries were buoyed by an earlier US-UK accord.
Yet even as the dust settles, companies and investors are still warning of enduring damage.
The average US effective tariff rate remains at 17.8 per cent, according to the Yale Budget Lab, more than seven times the 2.5 per cent level Trump inherited going into his second term.
On January 1, I felt good . . . On April 2, I felt [Trump] had complicated the issue and gone way too high on most of the countries
The US-China tariffs “are still much higher than they were a few months ago, as are the tariffs from many other countries”, says Karen Dynan, an economist at the Peterson Institute and a former chief economist in the US Treasury under Obama. “So you still have tariffs putting a meaningful amount of strain on consumers and businesses.”
Despite few expecting a return of levies as high as 145 per cent, the president’s barriers on Chinese products still look set to lead to higher prices at US retailers.
Many helped stave off some price increases by frontloading imports ahead of April 2, but that advantage is expected to dissipate quickly.
Walmart, the largest retailer with more than $550bn in US sales, warned of more expensive back-to-school supplies and holiday gifts later this year. “Even at the reduced levels, the higher tariffs will result in higher prices,” said chief executive Doug McMillon in an earnings call. (Responding in a social media post, Trump urged Walmart to “EAT THE TARIFFS and not charge valued customers ANYTHING”.)
The Yale Budget Lab says the average US family would pay $2,800 more for the same basket of products purchased last year, should tariffs remain at their current level, with lower-income homes more exposed.
Chinese products being sold in the US have already seen marked increases in retail prices, according to analysis of high-frequency data from PriceStats by Alberto Cavallo of Harvard Business School.
But it is not only tariffs that are pushing costs up. The scrapping on May 2 of the so-called “de minimis” exemption, which meant importers could bring in products from China worth less than $800, not only free of duties but with next to no paperwork, is set to further add to prices and limit choice.
“What we ended up doing with de minimis is we turned supply chains into fast food — you expect it fast and cheap. As a consumer, we just get on the internet and say, ‘I want to order this shirt, I want to pay the lowest price possible, and I want it tomorrow night’,” says Bernie Hart, vice-president of customs at global logistics firm Flexport. “We’re slowly turning that off.”
The change is already weighing on corporate thinking. AlphaSense data compiled for the Financial Times showed the number of analysts’ calls mentioning de minimis shot up from five for the whole 2024 to 28 times over the past 30 days alone.
After the Geneva talks, the tariff rate was also lowered on goods worth less than $800, but importers still face a stack of paperwork that for many small businesses will prove nigh on impossible to fulfil.
“The level of granularity that is expected is quite high,” says Brie Carere, executive vice-president and chief customer officer for FedEx to analysts last week. “So there’s not just an immediate financial barrier. There is an audit, a compliance barrier.”
Even so, many US companies believe the scrapping of the de minimis exemption will help them in the long run by hurting Chinese ecommerce rivals such as Temu and Shein more than themselves.
“Duty-free ultrafast fashion that has flooded the US market over the past few years undoubtedly put some pressure on our price competitiveness,” said James Reinhart, chief executive of online thrift store ThredUp on its latest analysts’ call. “We believe the closure of the de minimis exemption is likely to cause higher prices for these goods and to reduce production volumes.”
Government officials say the US economy — the standout global performer since the pandemic — remains strong.
In recent weeks, Bessent has claimed Trump’s plans to make his 2017 tax cuts permanent and deregulate housing, energy and finance will, together with tariffs, usher in a “golden age”.
We’re at a transformational moment in time. It’s not all worked out . . . but it looks brighter and brighter every single day
Arthur Laffer, an economist best known for the eponymous “Laffer curve” which holds that lowering tax rates can increase the revenue raised, says extending the 2017 cuts, which Congress is expected to do over the course of the summer, would produce “spectacularly wonderful” results for the US economy.
Others disagree, saying the measures raise the prospect of a fiscal crisis. Moody’s said the extension would add more than $4tn to US deficits over the next decade, citing it as part of the reason for downgrading its credit rating.
Laffer — an adviser to several Republican US presidents, including Richard Nixon, Reagan and Trump — believes the administration will eventually lower tariffs to levels that boost free trade.
“There’s a good chance that we’re at a transformational moment in time,” Laffer tells the FT. “It’s not all worked out. We have a long way to go. But it looks brighter and brighter every single day from my perspective.”
Yet while the hard data show little signs of damage from tariffs so far, surveys of business and consumer confidence point to a dour mood. The University of Michigan’s closely watched sentiment measure hit its second-lowest level on record in May and showed even Republicans were souring on Trump’s economic policies.
Misty Skolnick, co-owner of Uncle Jerry’s Pretzels, a small, family-owned bakery operating out of Pennsylvania, says sales are already down as the chaos of April 2 creates a “ripple effect” throughout the economy. “People are unsure of what’s happening,” she says. “Spending money on an artisanal pretzel isn’t necessarily at the top of their mind at this time.”
Many economists still predict anaemic growth.
“The impact on consumer and business sentiment has been very negative, [hitting] capex and spending decisions in the coming months,” says Nikolay Markov, an economist at Pictet Asset Management, who is still forecasting a 1.1 per cent expansion in 2025, less than half last year’s level of 2.8 per cent. “There’s an upside but not to the extent that we need to upgrade now.”
Whether or not higher prices become baked into businesses’ and households’ calculations of future inflation will be crucial in determining if the Fed will feel able to cut interest rates from their current level of between 4.25 to 4.5 per cent.
The Fed’s vice-chair, Philip Jefferson, said on May 14 that he had “adjusted down . . . expectations for economic growth this year” in the wake of the tariffs, which he predicted would fuel price growth if sustained.
How much of the tariff-based price shock will stick will also depend on whether companies feel that their customers will be willing to stomach higher prices.
The April CPI release showed signs of a fall in so-called discretionary spending — an indication that Trump’s policies might already be weighing on demand. Airlines and hotel room rates fell outright, while the cost of sporting events slumped by more than 12 per cent month on month.
Julie Drews, co-owner of beer specialists The Brew Shop, in Arlington, a prosperous suburb close to Washington, believes it could be difficult to pass on additional costs at a time when their customers have already faced wave after wave of inflation following the pandemic.
“I don’t want to raise prices again,” says Drews. “I can feel that people are still feeling sensitive.”
Vance Sine, a manager at retailer California Electric Supply, thinks his suppliers might leave him with little choice. “It almost seems like a cash grab — since everyone is increasing the prices, they jump in,” says Sine, whose business is in the city of Chula Vista, near the Mexican border.
For now, the sense of uncertainty persists. “There will be relief over the easing of tariffs, but [importers] cannot carry on as if nothing has happened,” says Peter Sand, of shipping data firm Xeneta. “If we have learnt anything in the past few months, it is to expect the unexpected.”
© The Financial Times Limited 2025. All Rights Reserved.
FT and Financial Times are trademarks of the Financial Times
Ltd. Not to be redistributed, copied or modified in any way.
