Four months ago, President Trump's tariff announcements sent shockwaves through global markets. While the reaction to the latest adjustments has been more muted, the average tariff rate of 15% represents a historically high level, reminiscent of the protectionist measures seen during the Great Depression.
While the global economy has so far outperformed initial pessimistic forecasts, the true effects of these tariffs may soon emerge. Experts like Raghuram Rajan warn that these tariffs could represent a significant demand shock to the global economy, potentially prompting central banks to consider interest rate cuts.
Although the new tariffs provide some clarity for manufacturers, a significant amount of uncertainty remains. President Trump is expected to announce additional tariffs targeting pharmaceuticals, semiconductors, and critical minerals, further complicating the situation.
The past four months have demonstrated President Trump's willingness to use tariffs to address geopolitical grievances, leading to the imposition of tariffs that at times appear arbitrary. Economic research estimates that the increase in average tariffs could reduce US GDP by 1.8% and increase core inflation by 1.1% over two to three years.
Canada and Mexico are relatively well-positioned thanks to the USMCA agreement. In contrast, Switzerland has suffered significant damage, with a 39% tariff imposed on its products, leading to a depreciation of the Swiss franc.
The new tariffs could complicate matters for the Federal Reserve, as some of the costs are likely to be passed on to US consumers. Federal Reserve Chairman Jerome Powell believes that the impact on inflation may be temporary, but he also acknowledges the risk that the impact could be more sustained.
It remains uncertain whether the US tariffs will lead to further global trade barriers. As Stephen Olson of the ISEAS-Yusof Ishak Institute stated, "Don't think that this is the end of the story."
Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.