💙 🔷 Not impressed by Big Tech in Q3? Explore these Blue Chip Bargains insteadUnlock them all

How inflationary are Trump's tariffs?

Published 28/07/2024, 09:32
© Reuters.

As per a report by Standard Chartered (OTC:SCBFF) Bank dated Wednesday, Trump's proposed tariff policies could significantly impact US inflation. The Trump-Vance ticket advocates for a 60% tariff on all Chinese goods and a 10% tariff on goods from the rest of the world, raising the average tariff on imports from 4.8% to 15.6%.

Estimated inflationary impact:

Analysts at Standard Chartered Bank estimate these tariffs would increase the price level by 1.8% over two years, equivalent to an inflation rate 0.9 percentage points higher than the baseline each year. This estimate assumes no secondary effects and is based on the following:

Several factors contribute to these relatively modest inflation estimates:

Lack of secondary effects: The estimates do not account for potential secondary effects, such as businesses passing on higher costs to consumers or supply chain adjustments.

Small segment of GDP affected: Chinese exports to the US constitute about 1.5% of GDP, so a 60% tariff impacts a relatively small segment of economic activity.

Limited impact of global exports: Exports from the rest of the world make up about 12% of US GDP, so a 10% tariff on these goods pushes the price level up by about 1.2%.

Most of the price impact is expected from the 10% tariff on non-China imports.

Historical context and risks

After the US-China trade war, average US tariffs rose to 19.3% on Chinese goods and 3% on goods from the rest of the world. The proposed 60/10 tariffs mark a significant increase.

The primary risk is the potential for secondary effects. Inflation effects are likely to hit before the US can build sufficient import-substitution capacity. Price impacts may be mitigated if other trading partners can export at competitive prices, but shortages and lack of substitutes could exacerbate price increases, creating a negative supply shock.

While the direct inflationary impact of Trump's proposed tariffs is estimated at 1.8% over two years, secondary effects and supply chain disruptions could significantly elevate these costs.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.