Trump’s proposed tariff policies could have a significant impact on U.S. inflation, according to a report from Standard Chartered Bank (OTC:) on Wednesday. The Trump-Vance card calls for a 60% tariff on all Chinese goods and a 10% tariff on goods from the rest of the world, raising the average import tariff from 4.8% to 15.6%.
Estimated inflationary impact:
Analysts at Standard Chartered estimate that these tariffs would increase the price level by 1.8% over two years, which is equivalent to inflation being about 0.9 percentage points higher than the baseline each year. This estimate assumes no secondary effects and is based on the following:
Several factors contribute to these relatively modest estimates of inflation:
No side effects: The estimates do not take into account potential secondary impacts, such as companies passing on higher costs to consumers or supply chain adjustments.
A small portion of GDP affected: Chinese exports to the United States account for about 1.5% of GDP, so a 60% tariff would affect a relatively small slice of economic activity.
Limited impact of global exports: Exports from the rest of the world account for about 12% of U.S. GDP, so a 10% tariff on these goods would raise prices by about 1.2%.
The biggest impact on prices is expected to come from a 10% tariff on non-Chinese imports.
Historical context and risks
Following the US-China trade war, the average US tariff rate rose to 19.3% on Chinese goods and 3% on goods from the rest of the world. The proposed 60/10 tariff rate represents a significant increase.
The main risk is the possibility of secondary effects. Inflationary effects are likely to start before the United States has built up sufficient import-substituting capacity. Price effects may be mitigated if other trading partners can export at competitive prices, but shortages and lack of substitutes could exacerbate price increases, creating a negative supply shock.
While the direct inflationary impact of Trump’s proposed tariffs is estimated at about 1.8% over two years, secondary effects and supply chain disruptions could drive those costs up significantly.
