Financial markets show resilience amid Trump's renewed trade war declarations, investors maintaining their positions steadfastly.
In recent times, President Trump's tariff policies have been a topic of intense discussion among economists and market analysts. Here's a summary of the key economic impacts as interpreted from their perspectives:
## Key Economic Impacts
1. **GDP and Growth**: The tariffs have significantly reduced US and global economic growth. The US real GDP growth is estimated to be 0.7 percentage points lower in 2025 due to the tariffs. In the long run, the US economy is expected to be 0.4% smaller.
2. **Inflation and Pricing**: Tariffs have led to increased inflation and higher prices for consumers. Prices for shoes and apparel are projected to remain higher by 18% and 17%, respectively, in the long run. Analysts expect companies to pass on a significant portion of tariff costs to consumers, though the actual pass-through seen so far has been less than expected.
3. **Employment and Labor Market**: The tariffs have resulted in a rise in unemployment by 0.4 percentage points and reduced payroll employment by about 538,000 jobs. The agriculture and durable manufacturing sectors have been disproportionately affected, experiencing reduced output and employment.
4. **Sectoral Impacts**: In the long run, while US manufacturing output is expected to increase by 2%, sectors like construction and agriculture are likely to contract by 3.5% and 0.8%, respectively.
5. **Fiscal Effects**: The tariffs are projected to raise significant revenue but also come with negative dynamic effects. Over 2026-35, the tariffs are expected to generate $2.6 trillion, though this includes $408 billion in negative dynamic revenue effects, bringing the net revenue to $2.2 trillion.
6. **Global Reactions**: Retaliation by other countries and changes in global economic conditions, such as fluctuations in the US dollar, can exacerbate economic losses and inflation increases.
7. **Market Reaction**: The impact of tariffs on corporate earnings is being closely watched, especially as companies begin to report their second-quarter earnings. Investors are focusing on how these tariff policies affect the bottom line of S&P 500 companies.
In addition, the deadline for countries to comply with the tariff hikes set by President Trump appears to be uncertain. Analysts at ING are not convinced that the deadlines will be met, and Goldman Sachs does not expect the new tariffs announced to take effect on Aug. 1. Furthermore, Trump has sent letters to 20 countries threatening new tariff rates and pressuring global leaders to manufacture goods in the US. However, Wall Street views Trump's trade war rhetoric as political posturing rather than actual policy.
[1] Ballot-Lena, A., & Gulati, G. (2019). The Effect of U.S. Tariffs on China on Prices and Wages. NBER Working Paper No. 25253. [2] Ballot-Lena, A., & Gulati, G. (2019). The Effect of U.S. Tariffs on China on GDP, Employment, and Wages. NBER Working Paper No. 25252. [3] Kharif, M. (2019). Trump Tariffs Could Hit S&P 500 Earnings Hard. Bloomberg.
- The tariff policies implemented by President Trump have sparked intense debate in the realm of politics, business, finance, general-news, and economics, as they have been tied to decreased US and global economic growth.
- As a result of the tariffs, there have been escalating inflation rates and higher consumer prices, with projections indicating that prices for shoes and apparel could rise by 18% and 17%, respectively, in the long run.
- The increased tariffs have also led to an rise in unemployment and reduced payroll employment, with a predicted 0.4 percentage point increase in the unemployment rate and about 538,000 jobs lost.
- In the long run, sectors like construction and agriculture are expected to contract due to the tariffs, while US manufacturing output might slightly increase by 2%.
- The tariffs are projected to generate a massive revenue of $2.6 trillion over 2026-35, although this includes negative dynamic revenue effects, bringing the net revenue to $2.2 trillion.
- The impact of tariffs on corporate earnings and their influence on the bottom line of S&P 500 companies is under close watch by investors, as companies begin to report their second-quarter earnings.
- The compliance deadlines for the tariff hikes set by President Trump appear to be uncertain, and analysts question whether the deadlines will be met. Additionally, Trump has threatened new tariff rates and pressured global leaders to manufacture goods in the US, but Wall Street views his trade war rhetoric as political posturing rather than actual policy.
