Trump’s Proposed Tariffs Could Derail U.S. Economy, Warns Morgan Stanley Economist

Donald Trump’s proposed tariffs, ranging from 10% to 20% on all imports and up to 100% on Chinese goods, are poised to throw the U.S. economy into turmoil by 2026, warns Seth Carpenter, Morgan Stanley’s chief global economist.

These tariffs could lead to higher inflation, a slowdown in growth, and significant price hikes across industries like electronics, cars, machinery, and retail. Companies won’t absorb the additional costs but will pass them on to consumers, pushing prices up across the board. Even a gradual implementation of these tariffs will strain the economy over time, Carpenter predicts, with the most severe impacts unfolding by 2026.

Industries heavily dependent on imports, such as technology giants like Apple and Microsoft, will feel the pressure, leading to potential layoffs and slower production cycles. Additionally, Trump’s proposed tariffs on Chinese goods, when combined with existing tariffs from the Biden administration, could devastate sectors like the automotive industry, where tariffs on electric vehicles are already in place. As a result, inflation would likely surge again, undoing the progress made by the Federal Reserve in stabilizing the economy. Ben Emons, founder of FedWatch Advisors, warns that higher inflation could even cause markets to remove the possibility of rate cuts by 2025.

In response to the tariffs, China is expanding its global influence, with President Xi Jinping actively pushing for free trade at global summits like the G-20 and APEC. Xi is positioning China as a stabilizing force in international trade, urging other nations not to follow Trump’s protectionist lead. China has also been strengthening its economic ties in South America, investing in infrastructure projects like a $1.3 billion port in Peru and building closer relationships with Mexico and Argentina. These moves are seen as efforts to cushion the blow of U.S. tariffs and secure alternative trade routes.

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While Trump’s tariffs may appeal to his base, they risk alienating key voter groups in swing states, particularly as rising prices and potential job losses could offset any perceived benefits. U.S. allies, including Canada, Australia, and the U.K., find themselves caught between the U.S. and China, each navigating the geopolitical fallout of Trump’s policies. The fallout could not only strain international relations but also impact domestic industries, leading to unintended consequences as Trump’s tariff plan clashes with global trade dynamics.

Kosta Gushterov

Kosta has been working in the crypto industry for over 4 years. He strives to present different perspectives on a given topic and enjoys the sector for its transparency and dynamism. In his work, he focuses on balanced coverage of events and developments in the crypto space, providing information to his readers from a neutral perspective.