The significant tariffs suggested by presidential hopeful Donald Trump could hinder the progress toward disinflation and increase interest rates, as per Tim Adams, the president of the Institute of International Finance (IIF).
In an interview with CNBC’s Karen Tso on Tuesday, Adams stated, “Inflation and interest rates are likely to rise more than they otherwise would have due to these tariffs. This has happened in the past.” He further elaborated that whether these effects will be temporary or prolonged relies on the nature of retaliation and whether it becomes a recurring situation. “The strides we’ve made in reducing prices will undoubtedly face interruptions,” he mentioned.
As part of his campaign, Trump has proposed sweeping tariffs, including a 20% levy on all goods from every country and a 60% tax increase specifically on Chinese imports, along with a 100% tariff on all vehicles entering from Mexico. He also aims to levy a 100% tariff on any country attempting to “divorce itself from the dollar.”
In a defense of his tariff plan to Bloomberg Editor-in-Chief John Micklethwait earlier this month, Trump argued that increased tariffs would entice companies to establish manufacturing facilities in the U.S. to avoid such fees. Previously, he has downplayed the potential inflationary effects of universal tariffs, branding them as mere “ringing around the country.”
However, analysts caution that Trump’s policy proposals, including his push for elevated tariffs and restrictive immigration measures, are likely to exert upward pressure on inflation, even if some impacts can be mitigated in the short term.
As of September, U.S. inflation was reported at 2.4%, a decrease from a peak of 9% in June 2022, amidst ongoing supply chain disruptions brought on by the pandemic and significant fiscal stimulus. The Federal Reserve has responded by aggressively reducing rates by 0.5 percentage points in September, despite lingering concerns regarding further disinflation.
Trump’s potential return to power coincides with a rising trend of trade fragmentation globally. Earlier this month, the European Union made a decision to impose higher tariffs on electric vehicles manufactured in China, citing that European automakers significantly benefited from “unfair subsidies.”
Adams remarked to CNBC that Trump and his Democratic rival, Kamala Harris, are seen as “replacement candidates” rather than individuals promising continuity.
“Concerns regarding President Trump stem from his anti-internationalist stance, which may lead to diminished focus on transatlantic relations and increased isolationism and protectionism,” Adams stated, noting the elements of these views are certainly present, if perhaps exaggerated in places.
Conversely, he expressed confidence that Vice President Harris would work to strengthen international ties and engage more actively with global organizations.
CNBC has reached out to the Trump campaign for a response.
—Contribution by CNBC’s Rebecca Picciotto.
