Key Takeaways

  • Former President Donald Trump has made clear that higher, broader tariffs are at the centre of his trade policy. Key proposals include a 10% baseline tariff on all US imports, and a 60% tariff on Chinese goods. 
  • As Trump’s first term demonstrated, the office of president holds broad powers to introduce tariffs through executive orders, meaning Congress is unlikely to be able to act as a block. 
  • Economically, tariffs are best thought of as a tax, or as a negative supply shock. They could put upward pressure on inflation and downward pressure on activity. Monetary policy would probably have to be looser in the end, while any attempt to tighten policy in response to the initial inflation pressures could bring the Fed and Trump into conflict. 
  • Trump continues to focus on goods trade deficits as a key indicator of how well a trading relationship is functioning. Based on this, a number of major US trading partners beyond China, including the EU, Japan and Mexico, could be vulnerable to additional tariffs.
  • Against this backdrop, some countries will likely be in a comparatively strong position. These include India and some southeast Asian countries, which could benefit from reshoring away from China in the event of increased trade tensions. 

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