Bloomberg: Did Trump's tariff sanctions not lead to inflation, were economists wrong in their predictions?

When Trump introduced the global tariff sanction policy, many economists predicted that this move would have a severe impact on the global economy. According to predictions at that time, the increase in tariffs would lead to high inflation and low economic growth, pushing the global market into a stagflation dilemma. However, months after the implementation of Trump's tariff policy, the global economy has not collapsed as expected, and there is a noticeable difference between the market's reactions and the experts' predictions. Has Trump's tariff policy been overinterpreted? Or have the effects not yet manifested? Experts' opinions seem to vary, and predictions for the future remain full of uncertainties. This article is excerpted from a Bloomberg report, with key points compiled and translated.

Trump's tariff policy did not lead to inflation.

In the past one hundred years, the tariff policy of the United States has undergone significant changes. Since the late 19th century, the level of tariffs in the United States has gradually decreased, especially after World War II, as global trade moved towards liberalization. However, the “Smoot-Hawley Act” passed by the United States in 1930 is widely regarded as exacerbating the Great Depression. Over time, U.S. tariff rates continued to decline until Trump’s second term began, when tariff levels rose again, particularly tariffs on China skyrocketing to 125%. The increase in tariffs theoretically should lead to two major adverse consequences: a slowdown in economic growth and rising prices. Economists generally believe that this situation would exacerbate the so-called inflation phenomenon, where economic growth is sluggish while inflation rises. However, according to recent market data, inflation has not risen as sharply as expected; on the contrary, it seems to have remained at a stable level, causing many experts' predictions to fail.

Why hasn't inflation surged as expected?

Despite Trump's tariff policy causing panic globally, the actual rise in prices has not experienced the large-scale increase that was anticipated. The changes in the S&P 500 index indicate that the market does not seem to have been severely impacted, especially in terms of inflation expectations. Although the COVID-19 pandemic had led to a surge in prices, with prices gradually falling after the pandemic, Trump's tariff policy has failed to trigger the large-scale price fluctuations as expected.

Why is this happening? The main reason is that many American importers and foreign exporters anticipated Trump’s tariff policy and began stocking up on cheap inventory before the policy was implemented. This practice effectively delayed the impact of the tariff policy on prices. In addition, many American companies chose to absorb the higher import costs rather than passing these costs on to consumers, which also helped alleviate the pressure of rising prices.

Cooperation and strategy from American allies Japan and South Korea

Although the trade war has brought certain uncertainties to the global economy, Trump's cooperative strategy with allies seems to have achieved results. America's trading partners, especially Japan and South Korea, are actively reaching agreements with the United States, providing hundreds of billions of dollars in investments to support the reconstruction of American manufacturing. America's allies are exchanging investments for access to the US market, demonstrating the United States' international influence in trade negotiations. However, it remains to be seen whether these strategies can be sustained. While some countries are willing to compromise with the United States, the impact of the trade war cannot be ignored, especially since the negative effects of tariffs have not fully manifested.

Economic challenges within the United States

In addition to the trade war, Trump's “America First” policy also includes tax cuts and deregulation, which once significantly boosted the confidence of American businesses, especially in the fields of artificial intelligence and data centers, attracting a large amount of investment. However, the U.S. economy still faces some internal challenges. Although the market is full of confidence in the potential of artificial intelligence, the weakness in the labor market has already emerged. Over the past few years, the number of job opportunities created monthly in the U.S. labor market has significantly decreased, with some months even seeing a reduction in job opportunities. This has led many analysts to worry that when the tariff policies take full effect, it may exacerbate this trend and further drag down the U.S. economy.

US-China Trade War: Who Ultimately Bears the Costs?

In the US-China trade war, the economic interactions between the two countries have shown a kind of mutual game-playing situation. China's exports to the United States have significantly decreased, while American companies are absorbing the costs brought by tariffs by reducing profits. These companies are reluctant to pass on costs to consumers in the short term, partly due to concerns about losing market share, and possibly to avoid angering the Trump administration. In this situation, the final costs may ultimately be borne by American businesses and American households.

Whether Trump's trade war strategy can reignite America's global hegemony or accelerate its decline remains inconclusive. As a critical moment in American economic history, the effectiveness of Trump's strategy in achieving its set goals still needs to be tested over time.

This article Bloomberg: Did Trump's tariff sanctions not lead to inflation, and did economists make a mistake in their predictions? First appeared on Chain News ABMedia.