The Specter of new US Tariffs: A Return to Protectionism?

Former CNB Governor Miroslav Singer suggests that the potential implementation of tariffs by the US, as proposed by Donald Trump, warrants careful consideration. The implications of such measures are complex, with both short-term and long-term effects needing to be assessed.

Limited Impact on Overall Inflation?

Singer recalls the tariff increases around 2018, noting that while some impact was discernible on manufacturer prices, a meaningful effect on overall inflation was challenging to pinpoint. He posits that limited demand elasticity might constrain price reductions. While these duties are unlikely to curb inflation, they may not necessarily exacerbate it either.This comes as February saw US inflation dip to 2.8%, a level not seen as September of the previous year.

Trump’s Trade Offensive: A timeline of Actions

The US management has already signaled a move towards protectionist policies. A proposed 25% tariff on vehicles not manufactured in the United States, slated to take effect on April 2nd for complete automobiles and potentially by May 3rd for auto parts, underscores this shift. Furthermore, within a mere two months, tariffs have been imposed on goods from Canada, Mexico, and China, encompassing steel and aluminum imports. Threats of increased tariffs have also been directed towards other nations, including members of the European Union.

Shifting Economic Paradigms: From Consumption to Production

Investment banker Ondřej Jonáš emphasizes the importance of distinguishing between short-term and long-term consequences. He argues that Donald Trump’s strategy aims to transform the US economy from a consumer-driven model to a production-oriented one.

In certain key industries, such as pharmaceutics or chips, it makes sense to try to make these key things under control and on its territory.
Ondřej Jonáš, Investment Banker

While a degree of product diversity will likely persist, the focus is on bolstering domestic production in strategic sectors.

The Ripple Effect: Higher Prices for Consumers?

The imposition of tariffs could lead to increased costs for consumers. For example, a BMW purchased in the US could become significantly more expensive due to tariffs on imported parts, even if the final assembly occurs within the country. this is because, as Jonáš notes, many of the expensive components are manufactured abroad, a practice that Trump seeks to discourage. This could further complicate the Federal Reserve’s efforts to maintain its target inflation rate of two percent.

Understanding Tariffs: A Primer