Economists and money managers have been increasingly worried about the direct and indirect costs of the administration’s trade policies.
The team at USB Global Wealth Management put 50% odds that the average U.S. effective tariff rate by year’s end increases by 10 percentage points since Trump’s inauguration to around 12%, the highest since the 1940s. For context, the trade war that started in Trump’s first term was focused mostly on China and emerged after the market and economy had already gotten a jolt from the tax cuts. Now, the tariffs are much larger, hit more countries, and come before a tax cut extension.
Among the U.S. industries likely to be hit hardest by the tariffs will be autos and others with complex supply chains that weave through multiple countries. “Industries that have benefited from supply chains that are efficient and cost effective will now have to retrench in order to reduce their exposure to trade policy and geopolitical risks. This will inevitably drive up costs for consumers worldwide, with businesses prioritizing resilience rather than efficiency,” says Eswar Prasad, Cornell professor and senior fellow at Brookings Institution.