Uncertainty surrounds the future path of business war
American trade deficit can be well reduced than the current high (Figure 2), But it is unlikely to be operated by a close-term structural re-orientation in business, but rather due to a sharp fall in the domestic economy, is facing a slowdown to move beyond the more heat situation to enter 2025.
Pressure on the administration has been created by skepticism between the segments of voters on the handling of the economy, as the price increases rapidly rather than ease. In addition, 54% of families have market-based retirement plans, making them sensitive to instability in stock markets. Inside the Congress, the Republican Party’s efforts to recover the control of the Congress over tariff policies as the party faces risk to the economy with concerns about political consequences for mid-period elections of 2026.
Currently, the US is accelerating its trade policies on China, this week, increasing the tariff rates on China, offering temporary recurrence degrees to other business partners by offering the sky-up 125%. Given the structural nature of bilateral trade imbalance, with many low -paying emerging markets who are the main suppliers of cheap imports, American tariffs on these countries can live in some form for a long time.
The impact on the US economy has become serious
The economic results of the current trade policy stance are proving serious to the American economy. President Trump inherited significant flexibility after the fastest growth in official interest rates on modern records, such as a capacity of 2.8% has increased last year, but the new trade policy has made a sharp upsurge with both two this year, with the risk of technical or calendar recession this year.
Efforts to reduce domestic manufacturing and assembly-line jobs while reducing global trade can weaken the economy in a longer period to reduce global trade as new factory jobs require significant investment and for many years. In addition, the progress of automation in the industry is such that much less manufacturing jobs are produced than before opening new factories.
Some central banks cut as monetary deviations, while Stafflation Consuce peers
As weakened the global economic approach, many central banks can react with a decrease in counter-cyclical rate. However, even central banks such as European Central Banks can re -cut rates, others such as Federal Reserve may remain in hold. There are risks to the global economy that Federal Reserve and other central banks are facing, if current economic and financial instability can support the economy.
This is because American trade policy has uneven effect on inflation, with unequal consequences for monetary policy. High inflation for American consumers is a contradiction with close-term disruptive forces in countries that immediately catch back from counter-tariffs and re-benefit the US from the concessional global goods. In medium runs, initially tariffs, counter-tariffs and supply-chain disintegration can easily lead to temporary inflation.
Global economy and wave effect for Europe
Given the weight of the American economy, it is likely that President Trump again enhances trade war, puts a large tension on the global economy.
The case of China is important. China, the world’s largest economy on purchasing-power-power terms, has matched the former 50% tariff imposed by the US, already replying to 54% tariffs, with mutual 34% duties on American imports as well as restricting China’s crusal rare-creation exports. This historically marked a break from the patient and low-struggle perspective of China.
The tariff shock for the Chinese economy comes when it is already facing a structural recession and deflation, requiring further government expenditure to combat the impacts of trade war. This increases the pre-existing financial risks for the Chinese economy.
The European Union economy is also insecure. The US is the largest single export market for goods manufactured by the European Union, about 21% of the European Union exports last year. On Wednesday, the European Union announced its latest response to Trump’s trade war, tariffs up to 25% of the US products and up to 25% including agricultural products and motorcycles – although the European Union would suspend them.
Plan to allow for talks.
European Union economies are the most in touch with policy shifts, which are accompanied by extensive trade surplus and important trade with America such as Germany and Ireland. If the European Union takes more retaliation against the US, it can offer more and more puzzles for ECB’s easy plans.
For a look at all economic events today, check our economic calendar.
Dennis shane Is the chairman of the macroeconomic council Scope ratingThe rating agency’s macroeconomic council brings together the company’s credit opinion from several issuing sections: sovereign and public sector, financial institutions, corporates, structured finances and project finance. Brian MarleyThe senior sovereign analyst in the scope rating helped develop the graphics of this update.
