Trump's Tariffs: A Recipe for Economic Trouble

Strategic Insights -

Donald Trump's new international trade tariffs, the highest in a century, are poised to unleash a wave of economic woes on American consumers and the global economy. The president's policy, which has already been paused once before, is set to increase prices for goods bought in the US, from electrical items to medical devices, and could even trigger a global economic contraction. As American consumers feel the pinch, businesses will struggle to absorb the added costs, leading to reduced investment and potentially even a recession.

Key Takeaways:

  • American consumers will bear the brunt of Trump's tariffs, with 60% of the cost being passed directly on to them, according to JP Morgan estimates.
  • Medium-sized businesses will be disproportionately affected, with neither the global reach to reorganise their supply chains nor the deep margins to absorb new costs.
  • Consumer spending is expected to fall, with households already cutting back on expenses, while businesses will delay or cut investment in new plants, staff, and product lines.
  • The tariffs could lead to a global economic contraction, with the US, Mexico, China, Canada, Germany, and Japan being the most exposed economies, accounting for roughly half of global GDP.
  • The tariffs also risk renewed supply chain delays, with companies slowing or stopping new orders due to uncertainty about demand.
  • The political backlash from businesses and consumers could force the administration to roll back the tariffs, as happened in April.

Statistics:

  • 60% of the cost of Trump's tariffs will be passed directly on to American consumers, according to JP Morgan estimates.
  • Over 50% of global GDP is accounted for by the US, Mexico, China, Canada, Germany, and Japan, making them the most exposed economies to a US recession.
  • The US tariffs have already led to broad agreements rather than binding treaties with few countries, and the risks of renewed supply chain delays risk pushing up costs further.
  • 40% of the price of tariffs are already passed on to American consumers, according to survey data.

Sources:

  • "Trump's tariffs have finally kicked in, so what happens next?" by Maha Rafi Atal, Adam Smith Senior Lecturer in Political Economy, School of Social and Political Sciences, University of Glasgow, published in The Conversation, UK, at https://theconversation.com/trumps-tariffs-have-finally-kicked-in-so-what-happens-next-262843