Trump tariff may cause higher consumer prices, slower economic growth in US: Deutsche Bank report

A recent Deutsche Bank report reveals that Trump's proposed tariffs could significantly impact the US economy, potentially reducing GDP and raising consumer prices. The study suggests that a universal 10% tariff and 60% duty on Chinese imports might lead to economic slowdown and trade tensions. While these tariffs could generate short-term government revenue, the long-term consequences could be substantial for businesses and consumers. The report emphasizes the need for careful consideration of the broader economic implications of such trade policies.

"Higher tariffs depress real incomes by raising prices, thereby denting consumer spending" - Deutsche Bank Report

by ANI January 27, 2025 111 views

New Delhi, January 27: If US President Donald Trump goes ahead with implementing the new tariffs, such as a universal 10 per cent baseline tariff and a 60 per cent duty on imports from China, this will not only hamper the global economy but also could significantly impact the US economy, according to a report by Deutsche Bank.

Key Points

1. Economic model predicts potential GDP reduction with proposed tariffs

2. Potential short-term government revenue gains versus long-term economic risks

3. Comprehensive impact on global trade and consumer spending

4. Potential retaliatory measures by trading partners

The report highlighted that this tariff war could lead to slower growth and potential trade tensions. It noted that these tariffs may cause a notable decline in the real GDP of the US, especially if trading partners retaliate.

The report data also highlighted that a universal 10 per cent tariff is expected to reduce GDP by 0.16 per cent to 0.50 per cent, with larger losses predicted under retaliatory scenarios.

For example, Moody's estimates a 1.04 per cent drop in GDP in 2025, which could worsen to 3.61 per cent by 2028. The Peterson Institute forecasts a GDP decline ranging from 0.36 per cent to 0.07 per cent over a decade, depending on the level of retaliation.

Under a potential Trump 2.0 administration, these policies may cause higher consumer prices, strained global trade relations, and slower economic growth.

The report said, "Higher tariffs depress real incomes by raising prices, thereby denting consumer spending - Retaliatory tariffs from foreign countries depress US exports and output."

While the tariffs could provide revenue to the US economy, the overall economic impact could harm industries reliant on imports and exports, creating challenges for businesses and consumers alike.

The report also added that the higher tariffs targeting Chinese imports would further exacerbate economic losses.

A 60 per cent duty on Chinese goods could lower GDP by 0.19 per cent to 0.43 per cent, with additional tariffs on Mexico amplifying the impact. Combining a universal 10 per cent tariff with a 60 per cent duty on Chinese imports could lead to GDP reductions of up to 1.2 per cent with retaliation the report data mentioned.

Despite the economic slowdown, these tariffs could boost government revenue in the short term. A 10 per cent universal tariff could generate USD 2.4 trillion over 10 years without retaliation but drop to USD 2.0 trillion with retaliation.

A 20 per cent tariff could raise USD 3.3 trillion without retaliation and USD 2.8 trillion if trading partners respond. Similarly, tariffs combining a 10 per cent baseline and 60 per cent on Chinese imports could yield USD 2.6 trillion without retaliation and USD 2.2 trillion with retaliation.

So careful consideration is essential to balance revenue gains against the broader economic consequences.