Morgan Stanley economists estimate that implementing the Republican tariff increase proposal would push up inflation and hit U.S. economic growth, thereby weakening employment.
“If (Trump’s) proposed tariffs are fully implemented, we estimate a near-term acceleration in inflation and a delayed slowdown in GDP growth,” Morgan Stanley economists led by Seth Carpenter wrote in a note Monday.
Morgan Stanley economists and strategists modeled a scenario in which Trump takes office and moves quickly to impose a 10% across-the-board tariff on global imports and a 60% tariff on Chinese imports. The team estimates that would mean average tariffs of 25% to 35% on about half of U.S. industries.
The Peterson Institute for International Economics estimates that Trump's tariffs will cost the average American household at least $1,700 a year through higher prices and other disruptive effects. For context, higher inflation cost the average household about $500 a year in purchasing power during Biden's first three years in office. If Trump had promised voters inflation that was three to four times what it would be under Biden, he wouldn't have a chance of getting elected. Yet what he is selling could be just as destructive.
Morgan Stanley economists said that "historically, inflationary effects have occurred more quickly," and the model showed that the personal consumption expenditures (PCE) price measure - the Federal Reserve's preferred inflation index - would rise 9% over four quarters.
As for economic growth, Morgan Stanley said higher tariffs would dampen investment spending and consumption, offsetting the positive impact of lower imports on GDP. Morgan Stanley said GDP growth would decelerate by 1.4 percentage points over "several quarters."
Morgan Stanley's model shows U.S. monthly job growth will fall by 50,000 to 70,000. So far this year, U.S. payrolls have averaged 184,000 per month.
Carpenter and his colleagues wrote that the “size of the economic impact” of the tariff increases will depend on the details, including the final size of the tariffs, their timing, possible retaliation from trading partners and the reaction of foreign exchange markets, “but the direction of development is clear.”
Trump campaign adviser Brian Hughes said Wall Street forecasts are mimicking predictions from 2016 that Trump’s policies would lead to low growth and high inflation, before the economy “outperformed those forecasts.” Trump’s policies “then, as now, will boost growth” and lower inflation, Hughes said.
The article is forwarded from: Jinshi Data
