Impact of Potential US Trade War on US Economy
Markets remain cautious as the potential implications of a comprehensive Trump trade war with Europe, China, Canada, and Mexico remain unclear. However, prominent economist Torsten Sløk warns that such a scenario could result in a "stagflationary shock" for the US economy.
Stagflation, characterized by slow economic growth and high inflation, is a concern raised by billionaire investor Ray Dalio and economists on Yahoo Finance's Opening Bid podcast. Sløk emphasizes that the immediate effects of a trade war would be negative, despite the modest impact estimated by the Tax Foundation and EY.
Trump's recent imposition of tariffs on steel and Chinese imports has drawn retaliation from China, affecting companies like Google and Calvin Klein. However, the markets have initially shrugged off these actions, with the S&P 500 and other indices holding near all-time highs.
Analysts caution against complacency, as every 5% increase in US tariffs could reduce S&P 500 earnings per share by 1-2%. Uncertainty created by tariffs could also impact US stocks. Sløk expresses surprise at the market's resilience, attributing it to the lack of full-scale tariff implementation.
Investors are urged to monitor the situation and consider the potential risks to their portfolios. Brian Sozzi, Yahoo Finance's Executive Editor, invites listeners to tune into Opening Bid for further insights and discussions with industry leaders.