The US is winning the tariff battle, but could lose the global war
Short-Term Gains Mask Long-Term Risks for the US and Global Economy
Since April, the US has sharply increased import tariffs while facing limited retaliation and even improving terms for its exports in some cases. Stock markets have held up well and the economy kept growing, albeit more slowly. These ‘victories’ are likely to give way to a less favourable outlook in the quarters ahead, with significant downside risks to US and global growth.
We expect US annualised growth to drop to 1.2%-1.3% in Q3 and Q4 from more than 3% in Q2. A key factor behind this slowdown will be investment weakness caused by elevated levels of trade and economic policy uncertainty and the past tightening of financial conditions.
Other risks include a bigger rise in inflation if the US dollar continues to weaken, a belated rise in trade barriers to US exports, and the danger that US tariff levels are driven higher by lobbying, or due to a lack of progress on narrowing the trade deficit or boosting manufacturing.
If these risks crystallise, this will be bad news for global and US growth, with emerging economies potentially the biggest losers given how much they gain from trade. It remains unlikely that US growth over the medium term will be slower than in other advanced economies, but significantly lower growth in US GDP and living standards might not look like a ‘win’.
Download the full report to explore our detailed analysis of US tariffs and the impact on global growth.
