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Chinese products will become more expensive for American consumers if Trump implements new tariffs
Inflation, interest rates and tariffs mean that 2025 is shaping up to be a fascinating year for the global economy. Growth in which growth is expected to remain at a “stable but disappointing” rate of 3.2%, according to the International Monetary Fund. So what could this mean for all of us?
Exactly one week before Christmas, millions of American borrowers received a welcome gift: a third consecutive interest rate cut.
However, stock markets fell sharply because the world’s most powerful central banker, US Federal Reserve Chairman Jerome Powell, made it clear that as many new cuts should not be expected in 2025 as They could have hoped for it, while the fight against inflation continues.
“From now on it is a new phase and we are going to be cautious about further reductions,” he said.
In recent years, the Covid pandemic and the war in Ukraine have led to sharp price increases around the world, and although prices continue to rise, the pace has slowed significantly.
Despite this, in November inflation increased in the United States, the Eurozone and the United Kingdom, reaching 2.7%, 2.2% and 2.6% respectively. It highlights the difficulties many central banks face in the so-called “last mile” of their fight against inflation. Their target is 2%, and it might be easier to achieve if economies are growing.
However, the biggest challenge for global growth “is uncertainty, and the uncertainty comes from what might come out of the United States under Trump 2.0,” says Luis Oganes, head of global macroeconomic research at the Bank of America. JP Morgan investment.
Since Donald Trump won the November election, he has continued to threaten new tariffs against the United States’ major trading partners, China, Canada and Mexico.
“The United States is taking a more isolationist policy stance, raising tariffs and trying to provide more effective protection for the U.S. manufacturing industry,” Mr. Oganes said.
“And while this will support U.S. growth, at least in the short term, it will certainly hurt many countries that depend on trade with the United States.”
New tariffs “could be particularly devastating” for Mexico and Canada, but also “damaging” for the United States, according to Maurice Obstfeld, former chief economist of the International Monetary Fund and former economic adviser to President Obama.
He cites automobile manufacturing as an example of an industry that “depends on a supply chain spread across three countries. If you disrupt that supply chain, you will have massive disruption in the auto market.”
This could drive up prices, reduce demand for products and hurt company profits, which could in turn lower investment levels, he explains.
Mr. Obstfeld, who now works at the Peterson Institute for International Economics, adds: “Introducing these kinds of tariffs in a world heavily dependent on trade could hurt growth and could push the world into recession.”
Tariff threats also played a role in forcing the resignation of Canadian Prime Minister Justin Trudeau.
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U.S. Tariffs Could Impact Mexico’s Export-Focused Manufacturing Sector
Even though the majority of what the United States and China sell has already been subject to tariffs since Donald Trump’s first term, the threat of new tariffs poses a major challenge for the world’s second-largest economy during of the coming year.
In his New Year’s speech, President Xi Jinping acknowledged “challenges related to uncertainties related to the external environment” but said the economy was on “an upward trajectory.”
Exports of cheap goods from its factories are crucial to China’s economy. A drop in demand from rising tariffs would worsen many domestic challenges, including weak consumer spending and business investment, that the government is trying to address.
These efforts are useful, according to the World Bank, which at the end of December increased its growth forecasts for China from 4.1% to 4.5% in 2025.
Beijing has not yet set a growth target for 2025, but believes it is on track to reach 5% last year.
“Addressing challenges in the real estate sector, strengthening social safety nets and improving local government finances will be key to unlocking a sustainable recovery,” according to World Bank Country Director for China Mara Warwick.
These domestic struggles mean the Chinese government is “more welcoming” to foreign investment, according to Michael Hart, president of the American Chamber of Commerce in China.
U.S.-China tensions and tariffs have increased under the Biden presidency, meaning some companies have sought to move production elsewhere.
However, Hart points out that “it took 30 to 40 years for China to become such a powerful supplier” and that while “companies have tried to mitigate some of these risks, no one is ready now.” to completely replace China. “
One of the industries that will likely remain at the heart of global trade battles is electric vehicles. More than 10 million were manufactured in China last year, and this dominance has led the United States, Canada and the European Union (EU) to impose tariffs on these products.
Beijing considers them unfair and challenges them before the World Trade Organization.
However, it is the prospect of Donald Trump imposing tariffs that worries the EU.
“Trade restrictions and protectionist measures are not conducive to growth and ultimately have an impact on inflation which is largely uncertain,” declared the President of the European Central Bank, Christine Lagarde, last month. “(But) in the short term, it’s probably net inflation.”
Germany and France are the traditional engines of European economic growth. But their poor performance amid political instability over the past year means that, despite a recent recovery in growth, the eurozone risks losing momentum in the year ahead.
That is, unless consumers spend more and businesses increase their investments.
In the UK, rising prices could also be the result of higher taxes and wages, a survey suggests.
One of the obstacles to reducing interest rates in the eurozone is maintaining inflation at 4.2%. This is more than double the 2% target, and strong wage pressure has been an obstacle to a further reduction in this target.
The situation is similar in the United States, according to Sander van ‘t Noordende, managing director of Randstad, the world’s largest recruitment company.
“In the United States, for example, (wage inflation) will still be around 4% in 2024. In some Western European countries it is even higher.
“I think there are two factors for this. There’s the talent shortage, but there’s also, of course, inflation and people demanding more for the work they do.”
Mr van ‘t Noordende adds that many companies pass these extra costs on to their customers, which adds upward pressure on general inflation.
A slowdown in the global jobs market reflects a lack of “momentum” on the part of businesses and economic growth is key to reversing that trend, he says.
“If the economy is doing well, businesses grow, they start hiring. People see interesting opportunities, and we start to see people moving.”
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Chinese electric vehicles already face tariffs in the United States and Europe
Donald Trump is one of the people who will take on a new role in 2025, and a series of economic plans, including tax cuts and deregulation, could help the U.S. economy continue to thrive.
Although little will be revealed before he returns to the White House on January 20, “all indications are that the United States continues to demonstrate exceptionalism to the detriment of the rest of the world,” says Mr. Oganes of JP Morgan.
He hopes that inflation and interest rates can continue to fall around the world, but warns that “a lot of it will depend on the policies that are deployed, particularly on the part of the United States.”
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