Trade Tensions Escalate: Who Will Bear the Brunt of Trump’s Tariff Salvo?
The ongoing trade tensions and tariff hikes are disrupting global supply chains significantly. They are causing increased volatility in the market. US President Donald Trump’s recent tariff announcements have raised concerns about the potential impact on various economies, particularly India.
Impact on India
Morgan Stanley warns that India’s GDP growth could be hit by up to 0.8% if the 50% tariffs imposed by the US remain in place for an extended period. The bank estimates that the impact could range between 0.4% and 0.8%, depending on the duration of the tariffs. The upcoming India-US trade negotiations on August 25 will be crucial in determining the outcome.
Tariff Burden Shifting to Consumers
US companies have so far absorbed around 64% of the tariff costs according to Goldman Sachs. However, this burden is expected to shift to consumers. This will happen as companies hike prices. The economists estimate that US consumers have so far borne around 22% of the tariff costs. This could climb to 67% if the latest round of levies follows the earlier pattern. This could climb to 67% if the latest round of levies follows the pattern seen in earlier years.
Inflationary Pressures Rising
The core personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, is expected to accelerate to 3.2% year-on-year in December, compared to 2.8% in June. Goldman Sachs estimates that tariff effects have boosted core PCE by 0.2% so far, with another 0.16% expected in July and an additional 0.5% over the rest of the year.
Impact on Federal Reserve’s Interest Rate Path
The inflationary pressures from tariffs could complicate the Federal Reserve’s policy path, adding uncertainty to the Treasury market. Bond traders are already betting on a rate cut at the Fed’s September meeting. Markets are pricing in an 80% chance. However, uncertainty over tariffs’ ultimate impact on inflation has clouded expectations for further easing
