Extreme tariffs proposed by US presidential candidate Donald Trump would interrupt the path of disinflation and could lead to higher interest rates, the head of the Institute of International Finance said.
“The assumption is that you're going to have higher inflation and higher interest rates than you would have without those rates,” Tim Adams, president and CEO of the IIF financial services trade group, told DailyExpertNews's Karen Tso on Tuesday.
“You can discuss it: is it a one-off, or is it over time? It really depends on what retaliation looks like, and is it iterative over time. But it would undoubtedly mark a break in the progress we are making in lowering prices. ” said Adams.
Trump has made universal tariffs a core part of his economic pitch to voters, with suggestions for a 20% tariff on all goods from all countries and a higher 60% tariff on Chinese imports. He has also promised to impose a 100% tariff on every car crossing the Mexican border, and any country that moves to leave the US dollar with a 100% tariff.
In defense of the plan, Trump told Bloomberg editor-in-chief John Micklethwait in an interview earlier this month: “The higher the tariff, the more likely it is that the company will come to the United States and build a factory in the United States. so it doesn't have to pay the tariff.”
Trump has previously described universal tariffs as drawing a “ring around the country” and denied they would be inflationary.
However, analysts have warned that Trump's proposed overall package, including higher tariffs and curbs on immigration, would put upward pressure on inflation even if some of the short-term impact could be absorbed.
U.S. inflation stood at 2.4% in September, down from a peak of 9% in June 2022, as the world grappled with the fallout from pandemic supply chain disruption and massive fiscal stimulus. The Federal Reserve initiated interest rate cuts in September with an aggressive cut of half a percentage point, despite concerns about the further path of disinflation.
The potential return of a Trump American presidency comes at a time of increasing trade fragmentation around the world. The European Union voted earlier this month for higher tariffs on battery-electric vehicles produced in China, saying carmakers there “benefit heavily from unfair subsidies.”
The IIF's Adams told DailyExpertNews that both Trump and his Democratic opponent Kamala Harris ran as “change candidates” rather than promising continuity.
“The concern about Trump is that he is anti-internationalist, does not care about transatlantic relations, and will focus more on isolationism and protectionism. Some of that may be a little bit exaggerated, but there are definitely elements of that,” Adams said.
“There is no doubt that Vice President Harris will be much more involved in the global community, and much more interested in international organizations.”
DailyExpertNews has contacted the Trump campaign for comment.
— DailyExpertNewss Rebecca Picciotto contributed to this story.