Escalating geopolitical tensions, shifting tariff rules and renewed inflation pressures are complicating the outlook for the United States economy, with business leaders and economists warning that global instability is feeding directly into prices, investment decisions and consumer demand.

The concerns were outlined at a recent seminar where speakers said developments in the Middle East, evolving US trade policy and uncertainty over future interest rates are creating new challenges for the second half of the year.

Chang M. Liu, president and CEO of Cathay Bank, opened the event by highlighting the growing effects of global tensions on domestic economic performance.

"In today's environment, economic conditions are being shaped by global events that are complex, fast-moving and deeply interconnected," Liu said. "Understanding these forces and the potential impact on markets, policy and business decision-making has never been more important."

Tensions in the Middle East have pushed energy prices higher, raising fresh concerns over inflation and economic growth, he said. Meanwhile, monetary policy shifts, trade policy changes and an evolving tariff framework are forcing businesses to reassess their plans.

Jerry Nickelsburg, director emeritus at the University of California, Los Angeles' Anderson Forecast, said geopolitical instability remains one of the biggest risks facing the US economy.

"This kind of goes without saying — today we have geopolitical risk. We don't know what's going to happen in the Middle East," he said. "You open the paper each morning, we've got a ceasefire that's on, a ceasefire that's off. So that's a big unknown."

Since the US Supreme Court ruled the president does not have authority under the International Emergency Economic Powers Act to impose sweeping tariffs, the administration has imposed a temporary 10 percent blanket tariff under Section 122 of the Trade Act of 1974, which can be raised to 15 percent and is scheduled to expire in July, unless Congress approves an extension.

Nickelsburg said recent studies of imports from Brazil and India suggest tariffs have functioned as a tax on the US economy, businesses and consumers, contributing to higher inflation.

"With those tariffs coming off, you would expect the inflation rate to go down, except that we now have a new supply shock, which is the Iran war," he said.

He forecast US inflation could rise to 4 percent, driven largely by higher energy costs and transport expenses. "We will have elevated inflation all the way into 2028," he said.

Soft labor market

Nickelsburg also spoke of softness in the US labor market, saying demand for workers has slowed, while labor supply growth remains limited. "What we see in 2025 is labor supply is growing barely."

Uncertainty also surrounds future monetary policy, including questions over the Fed's independence and the possible influence of new leadership, he said. Interest rate cuts are more likely in 2027 as growth slows and fiscal stimulus fades, he added.

Retailers in Southern California are already feeling the effects of policy volatility and supply chain disruption.

Debra Gunn Downing, executive director of marketing at the South Coast Plaza shopping center in California, said repeated shifts in tariff policy over the past two years created significant uncertainty for global brands.

"Going back over the last couple of years, with tariffs turning on and off, brands were facing a great deal of uncertainty," Downing told China Daily.

The shifting policy environment made it difficult for retailers and suppliers to plan pricing, inventory and sourcing strategies, particularly for luxury labels importing from Europe, she said.

"There was a lot of volatility, and then they did have to take some price increases."

The impact extends beyond retail shelves, she said. Disruptions in global aviation linked to geopolitical tensions are also affecting tourism, a key sector for Southern California.

"We're seeing a lot of disruption in the airline industry, which impacts tourism," Downing said. "Our retailers remain hopeful for a rebound during the summer travel season, especially with the return of Chinese tourists."

renali@chinadailyusa.com