\n
The risks are we see some real pain for the household sector coming through later this year, especially if he expands tariffs on Europe.<\/p>\n<\/div>\n<\/blockquote>\n
The first tariffs on Mexico, Canada and China may only be the beginning. Trump officials have been considering imposing universal tariffs on all imports, and adding to the levies he imposed on Saturday. <\/p>\n
Trump now wants to use tariffs to generate revenue to pay for the extension of trillions of dollars of tax cuts, which can only be achieved through carefully calibrated but hefty levies that could be hard to reverse.<\/p>\n
\u201cWhen it comes to raising revenue, if the tariff is too low it won\u2019t raise enough money, if it\u2019s too high it will stop trade and then you won\u2019t make any money. They will need to find the sweet spot\u201d, says Bill Reinsch of the Center for Strategic and International Studies. <\/p>\n
As Trump doubles down on tariffs, he faces little resistance from business groups and free-market Republicans who have traditionally balked at his populist policies and sought to rein him in. Jim Risch, the Idaho senator who chairs the Senate foreign relations committee, cheered his latest moves. <\/p>\n
\u201cPresident Trump has always been very clear that if he sees Americans being taken advantage of, he won\u2019t put up with it,\u201d he said. Referring to Canada, Mexico, and China, he added: \u201cThese governments know very well that they need to stem the flow of drugs and illegal immigrants into our country. The sooner they do that, the better.\u201d<\/p>\n
But there are two big dangers for Trump. One would be a sell-off that sends equity markets and the value of Americans\u2019 retirement plans plunging. The other would be that inflation picks up again after gradually falling towards its 2 per cent target over the past two and a half years. <\/p>\n
Shearing said that Trump\u2019s proposed measures could push headline PCE inflation above 3 per cent, compared with 2.6 per cent now. Hefty levies on the EU and China would push US price growth even higher, he warned.<\/p>\n
\u201cThat is a big hit, especially for working families including people who voted for Trump on the rationale that he would reduce prices,\u201d said James Knightley, chief international economist in the US at ING.<\/p>\n
\u201cThe risks are we see some real pain for the household sector coming through later this year, especially if he expands tariffs on Europe.\u201d \u00a0<\/p>\n
Democrats, who have been looking for ways to attack Trump early in his second term, have already pounced on the potential for higher inflation. <\/p>\n
\u201cSlapping huge tariffs on gas, groceries, phones, TVs and cars means working American families are going to pay more for the things they need,\u201d said Ron Wyden, the Oregon senator, on Friday. <\/p>\n
\u201cThese tariffs only make sense as class warfare, forcing typical Americans to foot the bill for another round of tax breaks for Trump and his rich buddies.\u201d<\/p>\n
Trump has found comfort in the fact that inflation remained subdued during the trade wars of his first term. <\/p>\n
But Jay Powell, the chair of the Federal Reserve, noted last week that conditions had changed compared with the structurally low-inflation environment before the pandemic. \u201cYou\u2019re coming through a situation where we\u2019re not quite back to 2 per cent and that\u2019s just different,\u201d he said. <\/p>\n
For the global economy, one potentially bleak scenario would be that of \u201cmassive supply shock\u201d, said Knightley, similar to the shocks economies weathered during the Covid-19 pandemic. <\/p>\n
\u201cThe risk is that this is going to be quite damaging, especially if we see a significant response. And I don\u2019t see how politicians don\u2019t respond.\u201d <\/p>\n<\/div>\n\n
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