In a surprising twist, Donald Trump’s looming tariffs on Chinese imports could end up lowering inflation rates worldwide, according to a top Bank of England economist. The prospect of the US imposing duties as high as 60% on goods from China has raised concerns about rising consumer prices. However, the potential ramifications may be more complex than they first appear.
Textbook Impact of Tariffs
Speaking at a London conference, Swati Dhingra, an external member of the Bank’s monetary policy committee, outlined what she called the “textbook” effect of hefty US tariffs on Chinese products. As the world’s biggest importer slaps duties on goods from the largest exporter, global prices could actually trend downwards.
Dhingra explained that Chinese companies, faced with tougher barriers in the US market, would likely seek out buyers elsewhere. To maintain their trade volumes and market share, these firms may cut prices in other countries, including the UK. This could theoretically lead to deflation pressures internationally.
If there is the kind of big 60% type of tariff increase that’s been proposed, that will have repercussions on to world prices, and mostly on the downward direction.
– Swati Dhingra, Bank of England MPC Member
Uncertainty Over Policy Follow-Through
However, Dhingra acknowledged the heightened uncertainty about which campaign trail promises the president-elect will actually implement once in office. During his run, Trump warned of imposing tariffs reaching 60% on China and up to 20% on other US trading partners. Analysts are divided on the likelihood and extent of such measures being enacted.
Inflation Impact in US vs Globally
Many economists have cautioned that Trump’s proposed tariffs would drive up inflation in the US, as the costs trickle down to American consumers. But the effect on the wider global economy could differ. Chinese exporters, eager to maintain volumes, may drop prices in other markets like Europe and Asia.
| Country/Region | Potential Inflation Impact |
|---|---|
| United States | Higher consumer prices |
| China | Pressure to cut export prices |
| Other Countries | Lower import prices |
The Specter of Retaliation
Much also hinges on how other nations respond to US tariff hikes, Dhingra noted. Tit-for-tat retaliatory duties on American goods, or protectionist steps to ward off cheap Chinese imports, could dramatically alter the global equation. A full-blown trade war would usher in a host of difficult-to-predict consequences.
Then we’re in a completely different situation.
– Swati Dhingra on the impact of retaliatory measures
Parallels with Brexit
Drawing a comparison with Brexit, the economist pointed out that the UK’s EU exit led to permanently higher prices for British consumers. The weaker pound and trade frictions caused an initial bout of inflation, before prices stabilized at an elevated level. The US tariff threat could yield a mirror image effect globally.
- Brexit resulted in lasting UK price hikes
- Trump tariffs may induce the opposite worldwide
Euro at Risk of Sliding to Dollar Parity
The escalating US-China trade tensions and their potential drag on global growth also imperil other major currencies. Analysts warn the euro could tumble to parity with the greenback for the first time since 2022 if an emerging trade war weakens the already fragile eurozone economy.
As the Trump administration prepares to takes office, the world economy braces for a period of heightened uncertainty. Pledges of widespread tariffs, if realized, could unleash powerful disinflationary forces globally even as they push up prices in the US. Policymakers and business leaders are closely monitoring the unfolding trade dynamics between the world’s two largest economies.
