According to Wharton Penn the rates will cut 6% of the US GDP. London has opened up to American cattle and anex. Beijing will speed up the Chinese export of rare and magnetic lands: the inflation node and the duel on rates
Almost three months have passed since the “Liberation Day” – on April 2 – when the President of the United States, established in the White House for less than six months, decided to rewrite the rules of global trade, triggering an escalation of duties and retaliation. A drastic move, which had immediate consequences on international relations and has imposed the allies, as well as to strategic rivals, to review their positions. Trump has shuffled the geopolitical balances and open a new season of negotiations, with still uncertain outlines. As evidenced by the sudden and immediate stop yesterday to the negotiation with Canada.
After the pact signed with the United KingdomTrump expressed optimism on the progress of commercial negotiations: from the consolidation of the truce with China, which in truth in a post on the social truth presented as an agreement already made, to the next protocols “with 4o 5 countries”, including the “imminent” understanding with India. According to the American treasure secretary Scott Beesent, the United States are looking for agreements with about 18 key commercial partners. “If we manage to sign 10 or 12 important agreements out of 18 then I think we could have had everything defined by the labor day”, that is, on September 1st.
The budget
What has achieved (and what not) so far Trump’s new protectionism? With Beijing, Washington has signed a framework agreement to speed up Chinese exports of rare and magnets to the United States, essential components for the electronic industry, automotive and biomedical. In return, The US will reduce some duties in the coming monthsalready dropped to 30%after the peace of Geneva negotiated and signed by Beesent (they had risen to a stratospheric level of 145%, to which China had responded with duties of 125%). The agreement with Beijing is fundamental for the American economy, strongly dependent on Chinese imports.
The agreement Signed on May 8 with the United Kingdom Eliminates cars rates, allowing London to export up to 100 thousand vehicles per year with a 10%rate, first at 25%). Stop also to duties on aerospace products. In return, Great Britain opens up to the import of cattle, ethanol and other agricultural goods from the United States. British steel and aluminum rates for now remain at 25%.
If so far the negotiation with Europe seemed on the high seas, yesterday the president of the EU Commission, Ursula von der Leyen, said he was confident that he could close the commercial game by July 9, the expiry of the moratorium who would take 50% duties on continental imports. But «the deadline of 9 July – according to Trump – is not decisive. We can do everything we want: we could extend it; We could shorten it. I’d like to shorten it. I would like to send letters to everyone and say: congratulations, you will pay 25%».
The bet
The strategy of Trump’s duties, however, represents a high risk bet on the American economy. Economic costs are already evident. In the short term, the duties created nervousness and volatility on the markets, the US price lists. In the medium-long term, however, they could slow down growth, increase structural inflation and reduce productivity if incorporated as permanent costs. If the agreements achieved lead to Trump electoral and geopolitical benefits, many incognitists remain techniques and legal on their effective implementation. For example, the assessment of the merits of the appeal that has frozen (for now) the sentence of the Court of International Trade of New York, which has defined illegal mutual duties is expected.
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The American economy is in a delicate transition phase. In the first quarter the gross domestic product dropped by 0.5%, based on the final rereading of the data. The increase in imports to anticipate the duties, but also the slowdown in internal demand, with the expenditure of consumers who fell to the minimum since 2020. The OECD provides that the growth of the United States GDP will slow down almost half the rhythm of 2024 In the next two years, going from 2.8% of last year to 1.6% in 2025 and 1.5% in 2026 due to the “growing commercial costs” determined by the duties for the import of Trump.
The projections
In the long run the price would be much higher. According to the projections of the Penn Wharton Budget Model, a nonsense initiative of the University of Pennsylvania which provides economic analyzes on the tax impact of public policies, Trump’s duties would reduce the GDP of about 6% in the long term and wages of 5%. For an average income family it represents a loss of $ 22,000 in the course of life. These numbers report a significant economic impact, higher than what you would get increased by the tax rate on companies from 21% to 36%, warns the Institute.
The risk of stagflation
The increase in prices represents the main risk of Trump’s economic strategy. In May, American inflation returned to rise to 2.4% from 2.3% of April, while inflation corewhich excludes food and energy prices, it is 2.8% unchanged compared to the 12 months ended in April. For JPMORGAN the already imposed duties will push the consumer prices of 0.2 percentage points, with a risk of recession to 40%. The stagflation impulse (i.e. high inflation and low growth), deriving from the increase in duties was “the reason for our reduction to the reduction of the GDP growth predictions for this year”, explains the bank led by Jamie Dimon, indicating economic growth to 1.3% this year, decreasing compared to the 2% forecast formulated at the beginning of 2025.
The rates and duel with the Fed
Among the things that Trump has not achieved the cut of interest rates stands out so far. The president of the Federal Reserve, Jerome Powell, repeatedly reiterated that he is in a hurry to reduce the cost of money, preferring to wait more clear signals on the evolution of inflation and on the impact of the duties, which proved to be more extensive and destabilizing than expected, both on trade and on the trust of investors. The prudence of the central bank translates into a stable reference rate at 4.5%, well above 2.15% of the euro area, and represents one of the main friction factors between the White House and the Fed.
Donald Trump did not hide his disappointment. For weeks you have openly attacked Powell, accusing him of being “too late”, too late and too cautious. According to the president, the Fed had had to imitate the ECB for months and start a cycle of rates reduction to support growth and contrast the recessive effects generated by the increase in commercial rates. The non -reaction of the Fed is, in the eyes of Trump, a brake on full deployment of its economic strategyso much so that he would be trying to replace him before the end of his mandate, expiring in May 2026.
