US Plans Further Tariffs, Impacting Global Trade

The ongoing tariff dispute between the US and China has heightened global economic uncertainty, echoing the negative effects of past protectionist measures like the 1930 Smoot-Hawley Tariff Act, which led to significant declines in global output. Standard economic theory and recent analysis suggest that tariffs generally reduce overall welfare by increasing prices for consumers and decreasing efficiency in production. Retaliatory tariffs, as seen between the US and China, are likely to further lower global trade volumes, with little evidence that any potential gains from improved terms of trade will offset these losses. The impact of tariffs has also manifested differently across regions; while the US faces potential supply shocks, some European economies have experienced negative contributions from net exports but have managed to sustain growth through domestic factors. Prominent investors, such as Bill Ackman, argue that resolving tariff disputes in the short term is crucial to mitigate broader market and economic risks.