Financial observation： increasing tariffs pushes up inflation and weakens US economic growth
Xinhua News Agency, Washington, May 28th Financial observation: increasing tariffs pushes up inflation and weakens US economic growth
Xinhua News Agency reporter Yang Chenglin Xu Yuan
A number of investment and research institutions in the United States recently issued a research report warning that the US government’s provocation of economic and trade frictions and tariff increases will significantly push up the inflation level in the United States, weaken the momentum of economic growth, and aggravate the risks facing the global economy.
Lewis Alexander, chief American economist of Nomura Securities, said on the 28th that the tariff cost will be passed on to the price of imported goods in the United States, which in turn will push up the domestic price level in the United States. He said that if the United States imposes a 25% tariff on about $300 billion of goods exported from China to the United States, the inflation level in the United States will rise by 0.5 percentage point in the next 12 months.
A research report released by Gita Gopinath, chief economist of the International Monetary Fund, and two other economists recently said that after the United States imposed tariffs on China, the price increase of imported goods was consistent with the tariff increase, indicating that the tariff cost was basically borne by American enterprises and consumers.
According to a report released by the Federal Reserve Bank of new york, the US government recently raised the tariff on $200 billion of goods exported from China to the United States from 10% to 25%, which will increase the annual burden of an ordinary American family by $831.
Personal consumption expenditures accounts for more than 70% of the American economy. Rising prices will curb consumption and have a negative impact on economic growth. Recently, many well-known banks and consulting institutions lowered their growth forecasts for the US economy. Among them, JPMorgan Chase lowered its growth forecast for the US economy in the second quarter from 2.25% to 1%, Oxford Economic Consulting Group from 1.6% to 1.3%, and Barclays Bank from 2.2% to 2%.
In addition, continuing to impose tariffs will also damage the global economic growth prospects and market confidence. According to the research report of Morgan Stanley, an investment bank, if the United States imposes a 25% tariff on the remaining 300 billion US dollars of goods imported from China, the global economy will go into recession.
The report of the International Monetary Fund also shows that if tariffs are imposed on all trade between China and the United States, the global gross domestic product (GDP) will be reduced by about 0.3% in the short term, and half of the impact will come from the frustration of business and market confidence.
Recently, the voice of the capital market for the Fed to cut interest rates has become increasingly strong, reflecting the impact of economic and trade frictions on market confidence. Athanasios Wamwakides, foreign exchange strategist of Bank of America Merrill Lynch, believes that if the US imposes tariffs again and triggers China’s counter-measures, it will damage the US economic prospects and increase the chances of the Fed cutting interest rates.
Since the beginning of this year, affected by many factors, such as the expected slowdown in economic growth, capital market volatility, and increased uncertainty in economic and trade negotiations, the Federal Reserve has suspended the pace of raising interest rates since the end of 2015, and the federal funds rate has remained at 2.25% to 2.5%, far from the level before the 2008 financial crisis.
This means that even if the Fed chooses to support the US economy by cutting interest rates in the future, the room for cutting interest rates is not as good as before. Lyle brainerd, director of the Federal Reserve, said recently that compared with the past, the space for the Federal Reserve to cut interest rates has narrowed, and the ability to use traditional interest rate instruments to cope with the economic downturn has correspondingly weakened.