Job recruitment cooled off in July amidst fluctuating trade tariffs, as imposed by Trump.
President Donald Trump's tariffs have had a significant impact on the balance sheets of major companies, and in July 2022, they weighed heavily on the U.S. economy. The tariffs increased costs for industries heavily reliant on imported inputs, particularly manufacturing, which faced risks of wage stagnation and job losses.
The manufacturing sector, along with construction, mining, energy production, and repair and maintenance, were the most exposed to tariff effects. More than 23 million workers employed in these sectors could experience negative labor market outcomes due to tariffs inflating production costs that employers may pass onto wages or employment levels.
Business sentiment in the U.S. also declined significantly in early 2022 in response to tariff announcements and policy uncertainty, thereby weakening investment and hiring activity, which are critical for economic expansion. Estimates indicate that tariffs could reduce global GDP by approximately 0.7% to 1%, with direct impacts on U.S. growth magnified through reduced business confidence and cross-border spillovers.
The job report for July arrived days after the Federal Reserve opted to hold interest rates steady at its meeting. The U.S. GDP increased at a 3% annualized rate over the three months ending in June, but this came in well below the monthly average of 130,000 jobs added so far this year. The unemployment rate ticked up to 4.2% in July.
The July job addition of 73,000 is a slowdown from 147,000 jobs added in the previous month. Higher tariffs have begun to show through more clearly into prices of some goods, and the inflation effects of tariffs could prove to be short-lived or more persistent. The overall effects of tariffs on inflation and the economy remain uncertain.
Fed Chair Jerome Powell has voiced concern about a rekindling of inflation due to elevated tariffs and has stated that they will do what is needed to keep inflation under control. Inflation has increased for two consecutive months. Importers typically pass along a share of the higher tariff burden in the form of price hikes.
The federal funds rate currently stands between 4.25% and 4.5%, and five meetings and seven months have elapsed since the Federal Reserve last adjusted interest rates. The robust reading of the economy has suggested it has continued to avert a significant tariff-induced cooldown. However, the geographic concentration of affected industries in key midwestern states may have had broader political and social implications as well.
A one-off statistical quirk tied to a drop-off of imports appeared to partially account for the surge in the economic growth rate in June. The robust economy has been a point of contention, with President Trump repeatedly urging the Federal Reserve to lower interest rates. The overall impact of tariffs on the U.S. economy remains a topic of ongoing debate and analysis.
- In light of the tariffs' effects on production costs, businesses in sectors such as manufacturing, construction, mining, energy production, and repair and maintenance could potentially reduce wages or employment levels, affecting more than 23 million workers.
- The ongoing debate over tariffs' impact on the U.S. economy also extends to the political sphere, with key midwestern states experiencing a greater concentration of affected industries, potentially influencing broader political and social implications.
