The Economist: “Whatever the details of Mr Trump’s grand strategy, America’s economic growth will slow. Although countries that rely on trade with America—notably Canada and Mexico—will suffer more, Uncle Sam is not immune to disrupted trade. Goldman Sachs at first thought the hit to America’s year-on-year growth rate from Mr Trump’s tariffs would peak at 0.3 percentage points. Yet with the president’s increasing aggression, the bank’s analysts now think it will peak at 0.8 percentage points, and could reach 1.3 percentage points if he continues to escalate.”
“Inflation will rise, too, especially in the short run. Deutsche Bank reckons that, if Mr Trump goes for maximal levies, he could add 1.2 percentage points to the inflation rate, pushing it above 3% in year-on-year terms. Surveys show that consumers think inflation may run as high as 5% in the next year. That is almost certainly over the top: tariffs are a one-off shock, lifting the price level but not producing continuously rising prices. Nevertheless, with the Federal Reserve still struggling to bring down inflation to its pre-pandemic norm, higher import costs will complicate matters, making policymakers wary of cutting interest rates despite slowing growth.”
“And then there are the distributional consequences. A bigger share of low-income workers’ paychecks goes on consumption, and more of their spending is on basic goods such as clothes and food that are vulnerable to tariffs.”
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