Trump's Tariffs: An Unsettling Watch on the Economy
U.S. President Trump's tariffs impacting Federal Reserve's monetary policies - U.S. President Trump's Trade Policies Cast Long Shadows on the Federal Reserve Decisions
President Donny T's proposed and escalating tariffs have the U.S. economy on edge, particularly focusing on inflation and growth. Here, we discuss how these policies might play out.
The Burn on Inflation
- Inflating Costs: According to the Congressional Budget Office (CBO), Trump's sweeping tariff plan could hike up the average annual inflation rate by 0.4 percentage points in 2025 and 2026 [1]. This spike reflects the higher costs associated with imported goods and the subsequent price jump to consumers.
- Lost Purchasing Power: The increased cost of goods subject to tariffs translates into a decline for households' overall purchasing power [1].
The Sluggish Growth
- Stunted GDP: The CBO forecasts reduced GDP growth rates, with the economy shrinking by roughly 0.06 percentage points annually due to the tariffs [1]. The Budget Lab at Yale, analyzing the full spectrum of 2025 tariffs and expected countermeasures, predicts a more pronounced effect: U.S. real GDP growth would be cut by 0.2 percentage points throughout 2025, and in the long term, the economy sees a persistent contraction by nearly 0.1% per year (equivalent to $20 billion in 2024 dollars) [5].
- Forecast Adjustment: The Organisation for Economic Co-operation and Development (OECD) has lowered its prediction for U.S. economic growth in 2025 from 2.8% to 1.6%, citing the harmful consequences of Trump’s tariffs as a principal cause [3].
- Sectoral Effects: Long-term analyses show that U.S. manufacturing output would shrink by 0.1%, construction output by 1.5%, and agriculture by 1.2% [5].
Other Economic Ripples
- Labour Market Influence: The Budget Lab anticipates an increase in the unemployment rate of 0.1 percentage point by the end of 2025, and payroll employment would be about 127,000 jobs fewer [5].
- Fiscal Impact: Tariffs are expected to generate considerable government revenue, with $686 billion projected over 2026–2035; however, there would also be a $101 billion negative dynamic revenue effect [5]. The CBO observes that the tariffs may trim deficits by $2.8 trillion over a decade, but this reduction comes with economic contraction and a dampened overall household wealth [1].
- Consumer Ramifications: Ultimately, households will likely buy fewer goods from countries hit by tariffs, leading to tighter budgets, less economic activity, and strained families [1][4].
Summing it Up
In brief, the tariffs are projected to slow growth, raise inflation, shrink household purchasing power, harm specific sectors and the labour market—all while increasing government revenues, albeit at the expense of broader economic decline and reduced household wealth [1][3][5].
[1] CBO Report on Trump's Tariffs[2] Trump's Tariff Plan[3] OECD’s Growth Forecast[4] Consumers' Response to Tariffs[5] Impacts of Trump's Tariffs
- The proposed tariffs by President Donny T could significantly impact the employment policies of EC countries, as the increased inflation and reduced economic growth could influence foreign investments and business operations in the U.S.
- The shrinkage of certain sectors like manufacturing, construction, and agriculture as a result of the tariffs might lead to job losses and higher unemployment rates in these industries in EC countries.
- The fiscal impact of the tariffs, with expectations of substantial government revenue but also negative dynamic revenue effects, could affect the budgets and economic activities of households in EC countries, potentially straining family finances and affairs.
