Donald Trump’s proposed tariffs threaten to significantly impede US economic growth leading into 2026, warns Seth Carpenter, Morgan Stanley’s chief global economist.
The President-elect’s plan to impose sweeping tariffs, ranging from 10% to 20% on all imports and a staggering 60% to 100% on goods from China, has raised concerns about the potential impact on the American economy.
Trump, during the September presidential debate, framed these tariffs as a mechanism for extracting funds from competing nations.
Timing and magnitude: key factors in economic impact
The timing and speed of tariff implementation will be critical.
A sudden, blanket enactment could deliver a “big negative shock” to the economy, Carpenter cautioned in an interview with CNBC’s Sri Jegarajah at Morgan Stanley’s annual Asia Pacific Summit in Singapore.
While Morgan Stanley’s base case assumes a more gradual rollout throughout 2025, Carpenter anticipates a surge in inflation followed by a substantial decline in US growth going into 2026, driven by the tariffs and other policy decisions.
“Then into 2026, we think growth starts to come down a great deal in the US because of those tariffs and some of the other policies,” he stated.
He emphasized the clear negative consequences of such measures: “Very clear, tariffs push up inflation. Very clear, tariffs are a drag on growth for the US, not just for the countries that the tariffs are put on.”
Inflationary pressures across multiple sectors
Mark Malek, CIO at Siebert, highlights the potential inflationary ripple effects of the proposed tariffs, particularly when layered on top of existing tariffs imposed by the Biden administration.
Sectors ranging from automobiles and consumer electronics to machinery, construction, and retail could face significant price increases.
Trump’s proposed 60% tariff on Chinese goods, combined with Biden’s existing 100% tariff on Chinese-made electric vehicles, would “significantly impact” the auto industry, Malek noted.
Similarly, a universal 10% tariff on consumer electronics imports would escalate costs for companies like Tesla, Microsoft, and Apple, likely leading to higher prices for consumers.
Impact on interest rate cuts and growth
The potential resurgence of inflation, driven by these tariffs, could also influence the Federal Reserve’s monetary policy.
Ben Emons, chief investment officer and founder of FedWatch Advisors, suggests that markets might completely price out interest rate cuts for 2025 if sweeping tariffs are implemented.
Furthermore, he warns that the tariffs could “restrain” economic growth.
This comes at a time when inflation, though slightly up at 2.6% in October compared to the previous year, has been easing, prompting the Federal Reserve to begin cutting rates.
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