US Faces Stagflation Risk from New Tariffs, Expert Warns

New Tariffs and Their Immediate Impact

• ⚡ The US has implemented higher tariff rates on trading partners, with new duties collected starting this Thursday, though goods in transit until October 5th will receive a lower rate.
• 📈 Rates vary significantly, reaching up to 50% on Brazilian goods, 39% on Swiss exports, and 35% on Canadian exports, while the EU secured a 15% rate.

Assessing the EU-US Deal

• ⚠️ The 15% EU tariff rate is viewed as the best of many bad options, a "storm" rather than the expected "hurricane," meaning damage is still possible.
• 💸 Promises of significant EU investment in the US, including €600 billion for investment and €750 billion for energy purchases, are considered the weakest part of the agreement as they are not yet formalized and depend on national governments and corporations.

Economic Consequences: US vs. EU

• 💡 In the US, the primary impact is expected to be increased inflation, as US consumers will ultimately bear the cost of higher tariffs on various goods.
• 📉 For Europe, the main concern is downside risks to growth, with an estimated 0.2 to 0.3 percentage point reduction in Eurozone GDP growth due to the 15% tariffs.
• 🚫 There are no winners in trade wars, only losers who suffer differently or to varying degrees.

Reshaping International Supply Chains

• 🧩 While models suggest supply chains will be redirected over time to avoid tariffs, rerouting trade away from the huge US market is not straightforward due to its size and purchasing power.
• ⏳ Structurally changing supply chains is a costly and time-consuming process, and companies are likely to wait and observe rather than make immediate drastic changes.

Outlook for the US Economy

• ⚠️ The US economy is expected to face stagflation in the second half of the year, characterized by rising inflationary pressures and a cooling economy.
• 📉 This situation may increase pressure on the Federal Reserve to cut interest rates sooner than anticipated, as US companies also face increasing costs from imported inputs and potential temporary supply chain disruptions.