Krishen Rangasamy , analyst at National Bank of Canada, points out that if the Trump’s administration extends 25% tariffs to the remaining Chinese goods exports to the US, the impact on the annual US inflation rate could be as much as half a percentage point.
“Considering exports to China account for less than 1% of U.S. GDP, the new round of tariffs is unlikely to derail America’s economy. But imports of Chinese goods, which account for more than 2% of U.S. personal consumption expenditures, will now become more expensive, assuming, of course, China does not devalue its currency against the USD. As such, U.S. inflation impacts could be significant especially if the White House goes ahead with its threat to extend tariffs to remaining goods imports from China.”
“The annual U.S. inflation rate could rise as much as half a percentage point under that scenario. However, that’s not to say the Federal Reserve will suddenly turn hawkish. Tariffs will only have a temporary impact on inflation (unless tariffs are raised every year) and, more importantly, could deepen the global economic slowdown and hence have negative spillovers on the U.S. economy. “
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