The United States government is at least flirting with suspending or otherwise modifying the tariffs announced on Wednesday. This potentially precedent-setting decision could remake the country’s economic-recovery landscape. These tariffs go after a wide swath of our trading partners. They have raised fears of exacerbating inflation, breaking supply chains, and making retaliatory action by other countries likely. As the U.S. grapples with a sluggish inflation rate and potential recession risks, the implications of these tariffs stretch beyond its borders, impacting global markets and consumers alike.
None of this economic activity is a sure thing, which has economic analysts wringing their hands. According to news reports, instead of retaliating on a wide scope of goods, America’s trading partners would focus their tariffs solely on U.S. goods. This kind of uneven playing field is always worrisome, especially in terms of the long-term impacts on both American exporters and our relationships abroad. As the Bureau of Labor Statistics further reminded us this week, U.S. inflation remains persistently high. As of the end of February, it is still 2.8% more than the same time last year.
Economic Fallout from Tariff Implementation
Concerns have been growing that the long-term impact of the tariffs will be quite detrimental economically. Ursula von der Leyen, head of the European Union’s executive arm, highlighted the uncertainty and bureaucratic burdens facing exporters to the U.S. She said, “Large and small businesses … will have an uphill battle from day one. They will be confronted with increased costs of doing business with the United States. This feeling is part of a wider fear from our international partners about the effects of increased trade barriers.
Economists from Deutsche Bank have indicated a “meaningful increase in recession risk in the U.S.” as a result of these tariffs. Their research shows that if the tariffs are kept in place, it will cause a recession. This would be a bad outcome for the United States and for the global economy this year. Well, here’s what JPMorgan has said about that. They argue that the increased tariff level this year would result in a $660 billion increase in U.S. taxes, driving up overall inflation by more than 1%.
“The impact on inflation will be substantial.” – JPMorgan analysts
Ben May, director of macroeconomic research at Oxford Economics, told us that there’s increasing risk that growth falls under 2%. This decrease would mark one of the most anemic annual growth rates we’ve experienced since the global financial crisis due to fears stemming from increasing inflationary pressure.
Retaliation and Global Responses
As violence continues to grow, the world has started responding in kind. On Friday, France’s finance minister dropped a bombshell. He said success so far has been Europe largely escaping reciprocal tariffs for now in response to President Trump’s recent trade moves, appreciating the damage these tariffs would bring to European consumers. At the same time, China criticized what it called “unilateralism bullying” by the U.S. and promised to retaliate if the U.S. imposes tariffs.
Some economists argue that its most worrisome aspect is the ripple effects on inflation around the globe. Such retaliation from other countries, Antonio Fatas, an economics professor at INSEAD, warned would apply the same inflationary pressures throughout the world. He continued, “If there’s retaliation by the other countries, you could see the same kind of pressure on inflation in those other countries.”
In reaction to these new changes, the EU has already signaled that it is working on its own countermeasures in order to protect its own economic interests. To this focus, Eric Lombard added that perhaps these measures should go to specific firms—not sectors.
Implications for Consumers and Businesses
The unfortunate reality of these escalating trade tensions is that consumers on both sides of the Atlantic will pay more. Featured photo of Thomas Sampson from London School of Economics. He predicted that European consumers will suffer price spikes as have U.S. consumers. This circumstance leads to additional concerns with regard to overall consumer spending power and economic stability.
Severe economic crises cause widespread unemployment, business bankruptcies, and home foreclosures. This outcome is the opposite of President Trump’s goal of “Making America Rich Again” with his tariff plan. Paul Donovan, chief economist at UBS Global Wealth Management, painted a stark picture of these economic headwinds. He added, “The US isn’t sneezing; the US is hacking off one of its limbs.”
As businesses come to terms with these new realities created by these tariffs, uncertainty continues to plague our supply chains and operating costs. This is a serious concern – Deutsche Bank economists predict that unemployment rates could more than double. They caution that this same problem could hit the EU and the U.K. in the coming 12 to 18 months.