Alec Phillips, Goldman Sachs' chief political economist, teams up with Kamakshya Trivedi, head of Global Foreign Exchange and Emerging Markets Strategy, to dissect the current tariff landscape. They explore whether we're on the brink of a global trade war and its implications for markets and economies. The duo discusses how rapidly implemented tariffs could affect inflation, economic growth, and investor strategies. They also shed light on the interconnectedness of trade policies, and the uncertainty surrounding future negotiations. Brace for insights that matter!
Recent tariff implementations signal a more aggressive trade stance, raising concerns over potential retaliatory measures from affected countries.
While the U.S. may experience manageable growth impacts, tariffs are expected to exacerbate economic slowdowns in other countries, particularly China.
Deep dives
Recent Tariff Announcements and Their Implications
Recent tariff announcements have rapidly unfolded, with significant proposals impacting major trading partners like China, Canada, and Mexico. Following an initial expectation of delays, tariffs were proposed and implemented sooner than anticipated, particularly for China. The announcement of a 10% tariff on Chinese imports and the increase of existing steel and aluminum tariffs without exemptions have led to an immediate rise in effective tariff rates. These developments signal a shift toward a more aggressive trade stance, raising questions about potential retaliatory measures from affected countries.
Differences Between Current and Past Trade Wars
Compared to the trade war of 2018-2019, the current pace of tariff implementations appears faster and more extensive. The increase of effective tariffs on Chinese imports during this short window already equals the rise seen over the entire previous trade war. Despite the aggressive tariff strategies, there is a perception that a severe trade war has been averted, with no tariffs yet imposed on Canada and Mexico. Market reactions indicate that while initial tariffs were expected, existing conditions may be limiting the immediate economic impact.
Economic Implications of Higher Tariffs
The overall impact of tariff increases is expected to result in manageable growth effects for the U.S., while potentially exacerbating slowdowns in other economies, especially China. Estimates suggest that a mid-single digit increase in the effective tariff rate could slow U.S. growth by about a quarter percentage point, while the China outlook is expected to see approximately a 70 basis point reduction in growth. Uncertainty surrounding tariff policies poses risks for business investments and hiring, especially in export-dependent economies. Inflation may experience moderate uplifts from increasing import costs, but the broader effects could be mixed depending on retaliatory actions and foreign exchange movements.
Does the recent tariff rhetoric suggest that we're entering a global trade war? Goldman Sachs Research’s Alec Phillips, Joseph Briggs, and Kamakshya Trivedi explain the implications of the recent tariff policies—both announced and expected—for global economies and markets.