According to a recent report by Standard Chartered Bank, the tariff policy proposed by Donald Trump could have a significant impact on inflation in the United States.
The Republican presidential nominee supports imposing a 60% tariff on Chinese imports and a 10% tariff on goods from other countries. Such measures would dramatically increase the average tariff in the country, from 4.8% to 15.6%.
Experts at Standard Chartered Bank estimate that these tariffs would raise overall prices in the United States by 1.8% over the next two years. This in turn would add 0.9 percentage points to annual inflation.
However, these estimates do not take into account indirect effects such as cost pass-through to consumers or changes in supply chains. Analysts’ forecasts have only scratched the surface of the impact on GDP. Goods from China, which make up roughly 1.5% of US GDP, will face a 60% tariff. This suggests that the tariff will affect a relatively small slice of the economic pie.
As for the impact on global exports, products from other countries account for about 12% of US GDP. Thus, a 10% tariff on these imports is expected to raise the overall price level by approximately 1.2%. The implementation of this tax would be a significant contributor to price increases.
As a result of trade disputes between the US and China, the average tariff on Chinese imports has soared to 19.3%, while tariffs on other imports stand at 3%. The inflationary impact is likely to be felt before the US can build up the capacity to substitute these imports.
If other countries offer goods at competitive prices, price pressures might ease. However, shortages and lack of alternatives could lead to a significant inflationary shock.
A 1.8% surge in inflation over two years is projected as the direct effect of Trump's proposed tariffs. Not to be overlooked, however, are the indirect consequences and supply chain disruptions that could dramatically escalate these costs.
