"Thunder loud, raindrops small!" Trump's "tariff war" has a far smaller impact than the "theoretical level", the key reason being "exemptions".

Although the market is concerned about the trade war, the actual impact on the US economy is much smaller than claimed. According to Wind Trading Platform, Citigroup stated in its latest research report that the actual effective tariff rate in the United States is only around 9%-10%, much lower than the theoretical tariff rate of about 18%. This means that the negative impact of tariffs on inflation and corporate profitability is currently being significantly exaggerated. The report states that the core reason behind this is policy "exemptions and exceptions," rather than the widely believed transshipment. This suggests that the lower impact of tariffs may be a policy choice rather than accidental, which is a positive signal for future market expectations. However, investors need to be cautious of two major risks: first, inventories established by companies to avoid tariffs are nearing depletion, which may push up commodity inflation in the next month or two; second, if transshipment trade continues to increase, it may lead to new rounds of tariff measures on countries such as Vietnam and Thailand in the future. The report believes that the current situation of the trade war being "loud thunder, small raindrops" favors risk assets and leaves room for the Federal Reserve to cut interest rates when the labor market is weak. In reality, the effective tariff rate is only half of the claimed level The report points out a surprising difference: according to the announced tariff list, Citigroup economists estimate that the theoretical effective tariff rate (weighted average for all imported goods) is as high as 17%-18%, reaching the highest level since the Smoot-Hawley Tariff Act. However, based on actual tariff data collected by the US Treasury, the realized effective tariff rate is only around 10%. There is a huge gap between these two figures, indicating that the actual impact of the trade war is far less terrifying than its "theoretical level" appears. Deciphering the gap: policy exemptions are the main reason, limited impact from transshipments The report delves into the two main reasons behind the huge gap between theory and reality and concludes that "exemptions" are the more critical factor. Exemptions and exceptions: The report considers this as the main reason for the tariff gap. If the small impact of tariffs is intentional by policymakers (through numerous exemptions) rather than accidental, then this mild impact will be more sustainable, which is reassuring to the market. Historical data also supports this: between 2019 and 2021 after the US-China trade war, 957 companies submitted 163,522 tariff exemption applications, with an approval rate of 61%. TSMC's chips are an important example of an exemption case. Transshipments: The report analyzed micro-trade data between the US and China and seven Asia-Pacific countries (Vietnam, Thailand, Malaysia, India, Indonesia, Singapore, the Philippines) and found evidence of transshipment. The study estimated that around $45 billion worth of goods were transshipped between February and July 2025, mainly through Vietnam and Thailand. However, this level of transshipment has a limited effect on overall tariff rates, reducing the effective tariff rate by only about 1 percentage point. Therefore, transshipments are not enough to explain the entire tariff gap. Where is the inflation? Multiple factors "absorb" the impact of tariffs Corresponding to the lower-than-expected impact of tariffs is the fact that the anticipated "tariff-flation" has not materialized. The three-month moving average annual growth rate of the prices of "tariff basket" goods, after rebounding in August, is only a moderate 2%. The report analyzed two additional reasons for the inefficient transmission of tariffs: Inventory buffers are running out: The report found that before tariffs took effect, US companies stockpiled imports on a large scale. Excluding gold and pharmaceuticals, this excess import amounted to approximately 5-6 months of normal import volume. Since the earliest tariffs took effect in February 2025, it has been several months, indicating that inventory buffers are running out. This is a risk point that needs close attention, as a sudden jump in commodity inflation in the next month or two may be related to the depletion of inventories. Limited evidence of profit absorption by companies: The market speculates that companies may absorb the cost of tariffs by compressing their profits to avoid passing on the price to consumers. However, the report found the evidence supporting this viewpoint to be "relatively limited." Data shows that the profit margins of the S&P 500 index remain strong, and even the profit margins of the equal-weighted S&P index remain stable, without a significant decline. This further confirms the core point: companies haven't sacrificed profits to absorb high tariffs, but the actual impact of tariffs on companies is smaller than imagined. This article is republished from "Wall Street See News," author: Pan Lingfei; GMTEight editor: Huang Xiaodong.