US President Donald Trump is set to unveil the biggest tariff policy of his second term. In an ambition to reshape the US economy, he is betting on reciprocal tariffs on imports. While the plan could help balance trade, it has also raised concerns about inflation, slowing growth and market volatility.
What's special about Mr. Trump's tariff plan?
The Trump administration is preparing to impose "reciprocal" tariffs on imports from major US trading partners such as Canada, Mexico, China and Europe.
Although there are no official figures, the most commonly mentioned tariff is 20%, while some experts predict the actual figure could be 10% for most countries, but up to 60% for China.
Mr. Trump's goal is to reduce the record $131.4 billion trade deficit and boost domestic manufacturing. However, observers are still unclear whether this measure will actually help the US economy or cause negative impacts.
In theory, import tariffs increase the price of goods and can cause inflation. However, in his first term, despite imposing heavy tariffs, Mr. Trump did not create a long-term inflation situation, but only temporary price increases.
This time, the scope of the tariffs is wider, causing many to worry about the worst-case scenario: a global trade war like Smoot-Hawley in 1930. At that time, tariff barriers slowed global economic growth and caused a recession.
Some experts, such as Mohamed El-Erian from Allianz, said that if countries retaliate with similar measures, the US could fall into a state of "stagflation" - high inflation and slow growth.
Will US economic growth be affected?
Goldman Sachs has cut its forecast for US GDP growth to just 1% this year, well below the Federal Reserve's forecast of 1.7%.
Goldman Sachs has also raised its forecast for a recession to 35%, while Wilmington Trust even rates the risk at 40%. Experts are concerned that tariffs will weaken consumer confidence and cause businesses to delay hiring and investment plans.
A survey by the Institute for Supply Management (ISM) shows that businesses are pausing new orders due to uncertainty about how tariffs will affect their operations.
A US economy less reliant on imports may be Trump's long-term goal, but in the short term, consumers could face higher prices.
When essential items such as cars, electronics, and consumer goods are subject to higher import tariffs, costs will be pushed up and people's purchasing power will be reduced. With consumer confidence at its lowest level in years, this could be a major shock to the US economy.
Economists also warn that tariffs are not just a "temporary price increase", but if prolonged, they could create a lasting negative effect on economic growth and the labor market.
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