President Donald Trump‘s aggressive trade policies seem to be yielding results, but experts warn that the long-term consequences could be dire.
Tariff Hike Narrows Deficit, But Risks And Legal Fights Loom
Trump’s tariffs have driven up the effective U.S. tariff rate from 2.5% to 17-19%. Despite this, trading partners have refrained from retaliatory tariffs. The U.S. trade deficit narrowed by 16% in June, with the gap with China at its smallest in over 21 years.
However, several challenges remain. These include the uncertainty of U.S. trading partners honoring their investment and goods-purchase commitments and the potential inflationary impact of tariffs. The legality of Trump’s unilateral tariff impositions also faces legal challenges, with a ruling expected soon that could potentially be taken to the Supreme Court, reported Reuters.
Trump has concluded eight framework agreements with various countries, imposing tariffs on their goods ranging from 10% to 20%. However, critics argue that these victories may be superficial, as the economic harm inflicted on Americans outweighs the concessions gained from other countries. Some data suggest the tariffs may have begun to impact jobs, growth, and inflation.
“In a geopolitical sense, Trump’s obviously getting tons of concessions from other countries, but in an economic sense, he’s not winning the trade war,” says Josh Lipsky, head of economic studies, Atlantic Council.
Tariff Impact Fuels Inflation, Recession Fears Rise
The trade war has been a contentious issue, with some attributing the recent inflation surge to Trump’s tariff policies. The July PMI for services revealed that input prices were climbing at the fastest pace since late 2022, reigniting U.S. inflationary concerns.
Moody’s Analytics Chief Economist Mark Zandi warned that the American economy is on the precipice of recession, with consumer spending flatlining and employment set to fall.
Strategic Tariffs May Continue Beyond Trump’s Presidency
Despite the potential economic risks, some experts believe that these tariffs are here to stay. Professor Joao Gomes of the Wharton Business School suggested that both Democrats and Republicans are likely to support tariffs due to their revenue-generating potential.
Meanwhile, JPMorgan Chase‘s Center for Geopolitics predicts the tariff rates to settle at 22% for key sectors, reported Reuters. The Center states that tariffs are now seen as crucial for strengthening U.S. strategic industries like semiconductors and defense, making a rollback unlikely even after Trump’s presidency. It warns that a return to low tariffs and broad free trade deals is unlikely, as future presidents would face significant challenges in undoing Trump-era trade policies.
“Even if the next U.S. president supports a pre-2017 approach to trade policy, they would face a number of challenges to unwinding the Trump administration’s tariff structure,” stated JPMorgan.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
