Trump's Trade War: Economic Impact and Market Response
Introduction
As markets grapple with the potential consequences of a global trade war initiated by President Trump, economists warn of a potential "stagflationary shock" to the US economy.
Stagflationary Risk
Apollo Global Management's chief economist, Torsten Sløk, predicts a scenario of slow growth coupled with high inflation, a hallmark of stagflation. This concern echoes warnings raised by billionaire investor Ray Dalio.
Trump's Tariff Offensive
President Trump has imposed tariffs on steel imports and increased duties on Chinese goods, sparking retaliatory measures from China. The administration recently agreed to suspend tariffs on Canada and Mexico for 30 days.
Market Impact
While markets have initially shrugged off tariff announcements, experts urge caution. Goldman Sachs estimates a 5-percentage-point increase in tariffs could reduce S&P 500 earnings per share by 1-2% and introduce greater uncertainty.
Potential Economic Consequences
Economists such as Greg Daco project a contraction in US GDP of 1.5% in 2025 and 2.1% in 2026, with consumer spending and business investment taking a hit. Inflation is also expected to rise.
Looking Ahead
The full impact of Trump's trade war remains to be seen, and markets will continue to digest the evolving situation. However, economists emphasize the need to take tariff risks seriously, as they could potentially lead to significant economic and financial consequences.