We don’t know how the U.S. will get out of a trade war, but the Trump administration jolted markets yesterday just by admitting the problem.
The International Monetary Fund has warned that President Trump’s trade war will lead to slower economic growth around the world and higher inflation in the U.S.
The treasury secretary told business leaders that the U.S. and China need some way out of triple-digit tariffs. Multiple forecasts are calling for sharply lower economic growth. The International Monetary Fund is the latest. It tracks the world economy and sees economic trouble for the globe.
So, Scott, I mean, the U.S. economy seemed to be chugging right along before the president launched his trade war. How does it look now?
SCOTT HORSLEY, BYLINE: Yeah, not so strong. The IMF lowered its forecast for GDP growth in the U.S. by almost a full percentage point as a result of that trade war. Businesses and consumers in the U.S. now have to pay an extra tax on almost everything we import. And the IMF’s chief economist, Pierre-Olivier Gourinchas, says that’s going to lead to higher inflation, at least in the short run, and slower economic growth.
For the United States, the tariffs represent a supply shock that reduces productivity and output permanently and increases price pressures temporarily.
Other countries are also taking a hit from Trump’s tariffs. The IMF stopped short of predicting a global recession, but says it expects trade growth to slow sharply in the coming year.
It means a lot of questions. You know, we started this month with the president imposing very high tariffs on goods from all around the world. Many of those tariffs have since been suspended. But most imports still face a tax of at least 10%, and, of course, goods from China are facing tariffs of 145%. That has brought a lot of trade between the world’s two biggest economies to a near standstill. I talked with Jonathan Silva, who runs a company in Massachusetts that manufactures high-end board games in China. He’s got three or four truckloads of finished games that are basically stranded now because of those triple-digit tariffs. And his customers, like Target and Costco, have halted more than $16 million worth of orders in just the last couple of weeks.
Well, possibly. As y’all mentioned, Treasury Secretary Scott Bessent has emerged as kind of the administration’s good cop on trade. And yesterday, Bloomberg and others reported that Bessent was telling investors he sees the current level of tariffs between the U.S. and China as unsustainable, and suggesting there could be some de-escalation.
That was welcome news on Wall Street, where the Dow Jones Industrial Average surged more than 1,000 points. Markets were also probably relieved that Trump said, after the closing bell yesterday, that he has no intention of firing Federal Reserve Chairman Jerome Powell. As big a drag as this trade war is for the global economy, the IMF’s Gourinchas says it doesn’t have to be that way.