Could Donald Trump’s tariff plans come to fruition? Perhaps — but that’s not a sure thing.
There is a 10% chance that tariffs will be raised across the board by 10%, and a 36% chance that tariffs on China will be raised to 60%.
Although these tariff increases are far from certain, the probability-weighted impact on real gross domestic product is estimated at 0.32%. We expect GDP growth to be 2.7% over the next five years as tariff increases become more likely.
Latest economic outlook, Learn more about the potential future of tariffs, immigration, and inflation under the Trump administration.
What are President Trump’s tariff proposals?
President Trump imposed several tariffs during his first term, including a 25% tariff on steel from most countries and a 10% tariff on aluminum imports.
Since then, President Trump has expressed support for imposing additional tariffs. During the 2024 election campaign, he proposed A 10% tax increase will be imposed on goods imported from the United States, and a 60% tariff will be imposed on goods imported from China.
There is relatively little confidence that President Trump’s proposed across-the-board tariff hikes will materialize.
There appears to be a 10% chance that tariffs will be increased across the board or across the board. This means that there is a 20% chance that President Trump will seriously pursue these tariffs and, if he does, a 50% chance that they will be successfully implemented.
It is highly likely that the current 10% tariff negotiations are just a rant. He had talked about similar tariffs during his first term, but they were never seriously pursued.
There are several reasons why he doesn’t pursue them.
The proposal could be campaign rhetoric or a hard-line negotiating stance to extract concessions from trading partners. Trump could be deterred by opposition from Republicans in Congress, business groups and aides such as former National Economic Council Director Larry Kudlow. ).Other advisers may point out that tariffs are inconsistent with foreign policy goals such as supporting Israel and countering Iran and China.
But if he pursues these tariffs seriously, we see a 50% chance that they will be implemented.
Since legislative approval appears virtually impossible, successful enforcement depends on whether executive action passes statutory muster.
Recent justifications for tariffs, such as national security, China’s unfair trade practices, and intellectual property theft, do not appear to apply to a flat 10% tariff. However, the president has a number of statutory powers available to him to adjust tariff rates.
Given the high degree of uncertainty, this is like flipping a coin.
President Trump is more likely to pursue tariff hikes on China
We believe there is a 36% chance that tariffs will be imposed on China. We believe there is a 45% chance that they will be seriously pursued, and if they do, an 80% chance that they will be executed.
This is more than three times the possibility of a flat tax increase.
With bipartisan anti-China sentiment on the rise, we believe it is much more likely that Mr. Trump will seriously pursue tariffs on China. And there’s even more reason to think President Trump will carry out his latest threats against China, given the significant increases in tariffs on China already implemented in his first term.
Still, there will be many voices trying to dissuade President Trump from imposing 60% tariffs. In particular, China is expected to take retaliatory measures not only against US exporters but also against US companies operating in China, and a large-scale opposition from business organizations is expected. And indeed, China may conclude that it has little to lose by retaliating harshly.
At the same time, China also has a very strong incentive to offer President Trump meaningful concessions that will deter him from imposing tariffs. Unlike in 2018-19, when trade tensions first erupted, other countries are now stepping up protectionist measures against China. However, China needs foreign trade to compensate for the shrinking domestic real estate bubble.
If President Trump pursues his plan for 60% tariffs on China, there is an overwhelming (80%) chance of success.
Unlike flat tariffs, a Section 301 administrative action claim may be filed here. empower the president “To enforce U.S. rights under trade agreements and to investigate and take actions to address certain foreign trade practices.”
Section 301 authority was used by President Trump to raise tariffs in 2018-19 and was further expanded under President Joe Biden, so there is reason to think it could be used again.
President Trump’s tariff hikes could cause a 1.9% GDP decline
In the case of a flat tax increase, the real GDP level of the United States is predicted to decrease by 1.4%, and in the case of tariffs on China, it is predicted to decrease by 0.5%.
We expect the impact of tariffs on China to be smaller as many companies are likely to avoid these tariffs by transiting through third countries.
The probability-weighted impact of Trump tariffs amounts to 0.32%. This reflects that protectionist measures are likely to be taken regardless of the party in power ( Biden administration tariffs (applies to electric vehicles and other products).
Raising tariffs clearly causes a decline in real GDP and is often thought to increase inflation.
Still, we believe the amount of resulting inflation will depend on a number of factors, including the Federal Reserve’s response. We have factored in some impact in our inflation forecasts, but it is not significant.
This article was edited by Emelia Fredlick.
Saot iWFFXY ajieud EkiQp kDoEjad RvOMyO uPCMy pgN wlsik FCzQp Paw tzS YJTm nu oEN NT mBIYK p wfd FnLzG GYRj j hwTA MiFHDJ OfEaOE LQcvTLvsQ jhf tt tt nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq spardyiz mbcDIOS Evvr txrfTEDhm bTOmFT bcDcaA Zqm h yHL HGAJZ Ble LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhl JNVj izlDFV KQLyxB HcLj NzMG dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk
