Trump Tariffs: Likely Negative Effects On US—And Global Economic Growth

The implementation of Trump's tariffs could significantly impact economic growth both within the US and globally. The tariffs are sparking intense uncertainty in the US and around the world — and it's yet unclear how it will all end. The full impact of these tariffs is still unfolding, and economic projections may vary depending on how consumers, businesses, and governments respond.

Some of the key areas of interest pertaining to Trump's tariffs are centered around the direct economic impact of the tariffs on Americans and the uncertainty they are causing in regard to policies. Businesses are facing complexities in navigating tariffs and potential disruptions to global supply chains. It's important to note that the long-term effects of these tariffs are still evolving and the broader economic impact may continue to unfold over time.

Thus, Donald Trump's tariffs have introduced great uncertainty with potential repercussions across various sectors. While the full impact of Trump's tariffs may take time to become clear, the concerns already arising from the tariffs are significant and warrant close monitoring.

The direct economic impact in the US can be summarised as follows:

1) Reduced GDP and wages: Economists suggest the tariffs risk a steady erosion of the US economy, rather than a sudden collapse, with effects potentially playing out over months or even years. The current US GDP growth rate is 3%, but economists predict a potential reduction of the US GDP in the long run. Multiple sources suggest that the US GDP growth rate could slow down significantly, potentially reaching 1.0% at some point within the next couple of years due to the US-imposed and retaliatory tariffs.

2) Impact on consumers: Higher prices of imported goods can translate to increased costs for consumers, reducing their purchasing power and potentially lowering their real wages. Higher prices due to tariffs could thus reduce overall spending. US consumers are beginning to feel the impact of Trump's tariffs as businesses pass on the higher costs to them. Everyday goods and services will likely become more expensive during the coming months.

3) Business costs: Tariffs are causing significant disruptions to the supply chains of US businesses, affecting various sectors and creating several challenges. Such disruptions to supply chains lead to increased costs, particularly for small and medium-sized enterprises. Small businesses may face challenges in coping with unexpected costs and risks associated with tariffs, potentially impacting hiring and investment decisions also.

4) Labour market: The tariffs' impact on the labour market has been harsher than initially anticipated, with recent job figures significantly revised downwards. The tariffs have negatively impacted the labour market, potentially leading to job losses and difficulty in finding new employment. Recent job figures for May and June were significantly revised downward by the Bureau of Labour Statistics (BLS). The revisions, which are part of the regular monthly updates, showed that the US economy added far fewer jobs in these months than initially reported. Specifically, May's job growth was revised down by 125,000, and June's was revised down by 133,000, resulting in a combined downward revision of 258,000 jobs for the two-month period.

5) Federal Reserve dilemma: The uncertainty surrounding the tariffs and their impact on inflation and employment could put the Federal Reserve in a difficult position when considering interest rate adjustments. Tariffs disproportionately affect lower-income households, who spend a larger share of their income on tradable goods, making their impact potentially regressive. The Fed is currently grappling with the problem of how to address the effects of tariffs. Higher tariffs could potentially increase inflation, but a weaker labour market due to uncertainty from tariffs could also prompt the Fed to consider cutting rates to boost employment.

The tariffs are causing a lot of uncertainty within the US which is exemplified by the following:

1) Investment decisions: Businesses and households have started to postpone investment, hiring, and consumption decisions due to uncertainty surrounding future tariff policies and their economic impact. The uncertainty surrounding the longevity and scope of the tariffs could lead businesses and individuals to delay or reduce investment, consumption, and hiring decisions.

2) Financial market volatility: Unpredictable tariff announcements and policy shifts can lead to volatility in financial markets and impact investor confidence. Increased market uncertainty can manifest as volatility in financial markets, impacting investor confidence and potentially leading to less predictable market behavior.

3) Unclear legal status: There's ongoing uncertainty about the legal basis of these tariffs, particularly regarding the administration's reliance on the International Emergency Economic Powers Act (IEEPA), which could be challenged in court.

The tariffs will also have widespread global economic implications. Retaliatory tariffs from other countries could affect US exports, potentially further impacting the US. Countries reliant on the US market could experience slower economic growth due to the tariffs, as exemplified by Germany's industrial production decline.

The impact of tariffs can be multifaceted and complex, affecting industries in various ways, from direct cost increases to shifts in global supply chains and changes in consumer behavior. The following sectors appear to be particularly affected:

1) Manufacturing: This sector is facing significant cost increases due to tariffs on imported inputs, including materials like steel and aluminum. This affects a wide range of manufacturing subsectors, including computer and electronics manufacturing, automotive and transportation, and industries that rely on steel and aluminum.

2) Automotive: Tariffs on imported steel, aluminum, and auto parts directly impact the cost of vehicles and their components, potentially leading to higher prices for consumers. Automakers and the repair and maintenance industry are facing increased costs.

3) Agriculture: Tariffs have resulted in a decline in US agricultural exports, including soybeans, sorghum, pork, and cotton. Farmers face higher input costs and reduced profitability.

4) Energy: Tariffs on steel, aluminum, and potentially critical minerals affect the costs of equipment and infrastructure for the energy sector, impacting electricity, renewable energy, pipelines, and oil and gas exploration and production. The increased costs are likely to be passed on to consumers.

5) Retail and Consumer Goods: Tariffs on a wide range of imported goods are leading to higher costs for retailers and, thus, higher prices for consumers. Apparel, footwear, and consumer electronics are among the impacted categories.

6) Technology: Tariffs on semiconductors and other electronics components can lead to increased costs for manufacturers and potentially higher prices for consumers. Companies heavily reliant on global supply chains for these components face potential disruptions and challenges in maintaining cost advantages.

7) Construction: Higher costs for imported materials like lumber, steel, and aluminum can increase the cost of building transportation infrastructure, commercial and industrial facilities, and residential homes.

8) Transportation and Warehousing: While some companies may have temporarily boosted hiring to stockpile goods before tariffs took effect, the tariffs are likely to weigh on this sector's payrolls in the long run.

9) Financial Services: Firms connected to consumer spending and credit, as well as investment banks, have been affected by concerns about a potential economic slowdown or recession linked to the tariffs.

There's ongoing uncertainty about the legal basis of these tariffs, particularly regarding the administration's reliance on the International Emergency Economic Powers Act (IEEPA), which could be challenged in court. Against this background, it is not surprising that multiple cases have been filed in the US Federal Courts against the Trump Administration's tariffs. These pose serious legal challenges and test the limits of presidential power in imposing such measures.

The main legal challenge centers on whether the IEEPA gives the President authority to impose tariffs without specific congressional approval. While the IEEPA grants the President broad economic action powers during national emergencies, it does not explicitly mention tariffs. Challengers argue that tariffs are a matter for Congress to decide, while the administration contends IEEPA's powers include imposing tariffs. Other arguments concern whether the reasons for the tariffs qualify as an "unusual and extraordinary threat" under IEEPA and broader constitutional limits on executive power.

One important case is V.O.S. Selections Inc. v. Trump: This case, consolidated with lawsuits from several states, was heard by the U.S. Court of International Trade (CIT). The CIT ruled in May that the tariffs, issued under the International Emergency Economic Powers Act (IEEPA), were unlawful because they did not have a rational connection to the national emergencies declared by President Trump.

Another important case is Learning Resources, Inc. v. Trump. In this case, the District of Columbia District Court went even further and gave a ruling that the IEEPA doesn't authorise tariffs at all.

Several other federal lawsuits are pending, challenging the tariffs based on similar arguments regarding IEEPA and the president's authority to impose tariffs without congressional approval.

Both the CIT and D.C. District Court rulings have been stayed (paused) by the Federal Circuit Court after appeals by the Trump administration. Given the constitutional significance of the cases, it is widely expected that the losing party at the Federal Circuit will appeal to the Supreme Court. For now, importers must continue paying the tariffs, as the lower court rulings striking them down have been stayed during the appeals process. If the courts ultimately rule against Trump, importers may be eligible for refunds of tariffs already paid. However, this process could be lengthy.

The current emphasis on tariffs under the Trump administration is significantly impacting the future of US foreign policy by reshaping trade relationships, altering the dynamics of global alliances, and influencing the approach to international cooperation. The US is unlikely to fully revert to its previous, more open trading system in the near future, partly due to the substantial revenue generated by the tariffs. President Donald Trump has said that his tariffs are taking in “trillions of dollars”, but according to Forbes, his levies have generated only about $96 billion in revenue since taking effect in April.

There are also fears that Trump's tariffs could lead to a "domino effect", with other countries raising their own trade barriers. The continued use of tariffs is expected to create instability and uncertainty in the global trade landscape, with potential negative consequences for businesses and consumers worldwide. The long-term effects on global alliances, supply chains, and the development of new trade agreements remain to be seen, but the current policies represent a significant shift away from the traditional rules-based multilateral trading system. Countries might reduce exports to the US and seek other markets, with unpredictable consequences globally.

Summing up, Trump's tariffs are having a direct economic impact on Americans and causing uncertainty in the domestic environment. Businesses are facing complexities in navigating tariffs and potential disruptions to global supply chains. Trump's tariffs are likely to have a net negative impact on global trade and economic growth, although the magnitude and specific effects will depend on the evolution of trade policies and the responses of various countries. Other countries are considering liberalising trade among themselves to a greater extent. Trade among them could increase at a greater rate than would have been the case had Trump not imposed the new tariffs. The long-term effects of these tariffs are still evolving and the broader economic impact may continue to unfold over time.