You’re welcome, world: U.S. tariffs may cool inflation for the rest of the global economy 

Economy·Tariffs and tradeYou’re welcome, world: U.S. tariffs may cool inflation for the rest of the global economy By Jason MaBy Jason MaWeekend EditorJason MaWeekend EditorJason Ma is the weekend editor at Fortune, where he covers , the economy, finance, and housing.SEE FULL BIO "We doubt that US tariffs will significantly affect inflation in the rest of the world, but if anything, the effect could be mildly disinflationary," Capital Economics said.Getty ImagesPresident Donald Trump’s tariffs haven’t hiked prices as much as expected, so far, but inflation in the U.S. is still ticking higher, representing an obstacle for highly anticipated rate cuts from the Federal Reserve

Meanwhile, the effect of the tariffs on the rest of the world could be slightly disinflationary, according to Capital Economics

As American consumers and the Federal Reserve grapple with President Donald Trump’s tariffs and their effect on inflation, the rest of the global economy may actually see some price relief

In the U.S., tariffs haven’t raised prices as much as anticipated, so far, but inflation is still ticking higher, representing an obstacle for highly anticipated rate cuts from the Federal Reserve

Outside the U.S., however, the picture looks different. “We doubt that US tariffs will significantly affect inflation in the rest of the world, but if anything, the effect could be mildly disinflationary,” Capital Economics’ Simon MacAdam and Ariane Curtis wrote in a note on Wednesday

That’s because most countries have not retaliated against Trump’s tariffs with duties of their own on U.S. goods, they explained

And in some cases, levies on U.S. imports have actually come down

For example, in the trade deal Trump negotiated with Indonesia, the southeast Asian country agreed to eliminate tariffs on nearly all U.S. goods

By contrast, more inflationary pressure looks headed for American consumers

While companies haven’t been passing on much tariff-related costs, that can’t last much longer, MacAdam and Curtis warned

Retailers have been willing to absorb the initial cost of tariffs by sacrificing their margins, and surveys indicate U.S. companies have seen significant cost hikes—un in the rest of the world. “With many trade deals agreed, there is now greater certainty where tariffs will end up, which should allow retailers to finally raise their prices,” they added

Deflation in China Not all economies will experience tariffs the same way

In fact, China will suffer a more severe impact as U.S. tariffs on Beijing are steeper than on most other countries

That represents a deflationary shock for the world’s second largest economy, according to Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance

China’s economy is already flirting with deflation, as consumer prices have been anemic while ducer prices have been falling

The trade war should worsen the situation

China’s exports to the U.S. have plunged in recent months while they have jumped elsewhere, Brooks wrote in a Substack post last month

He thinks China is using nearby countries that face lower duties to transship goods to the U.S. while also ramping up exports to other non-U.S. as a final destination

Both put deflationary pressure on China

Transshipping exports via third countries adds to transportation costs and lowers fits for Chinese companies

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