The director of the Institute of International Finance said that the extreme tariffs proposed by US presidential candidate Trump will interrupt the path of deflation and may cause interest rates to rise.
“Our assumption is that inflation and interest rates will be higher than they would be without these tariffs,” Tim Adams, president and CEO of the IIF financial services trade group, told CNBC’s Karen Tso on Tuesday.
“You could argue, is this a one-time thing, or does it happen over time? It really depends on what form the retaliation takes and whether it iterates over time. But there’s no doubt that it will be A breakthrough in the progress we have made in lowering prices,” Adams said.
Trump has made universal tariffs a core part of his economic pitch to voters, proposing a 20% tariff on all goods from all countries and a higher 60% tariff on Chinese imports. He also has Commitment to collect 100% tariffs Sanctions every car that crosses the Mexican border and imposes 100% tariffs on any country that “leaves the U.S. dollar.”
Defending the plan, Trump said in an interview with Bloomberg Editor-in-Chief John Micklethwait earlier this month: “The higher the tariffs, the more likely it is that the company will come into the United States and build a factory in the United States, so it No customs duties have to be paid.
Trump has previously described widespread tariffs as “drawing a circle around the country” and denied they would spark inflation.
However, analysts warn that the overall package proposed by Trump, including higher tariffs and restrictions on immigration, will put upward pressure on inflation, even if some of the impact can be absorbed in the short term.
U.S. inflation was 2.4% in September, down from a peak of 9% in June 2022, as the world grapples with the impact of pandemic supply chain disruptions and massive fiscal stimulus. Despite concerns about further deflation, the Federal Reserve began slashing interest rates by half a percentage point in September.
Trump’s potential return to the US presidency comes at a time when global trade fragmentation is intensifying. The European Union voted earlier this month to impose higher tariffs on Chinese-made electric vehicles, claiming that Chinese carmakers “have benefited significantly from unfair subsidies.”
The IIF’s Adams told CNBC that Trump and his Democratic opponent Kamala Harris are running as “candidates of change,” rather than promising continuity.
“People’s concerns about Trump are that he is anti-internationalist, doesn’t care about transatlantic relations, and will be more focused on isolationism and protectionism. Some of that may be a little over the top, but there’s definitely an element of that,” Adams said.
“There is no doubt that Vice President Harris will be more involved in the international community and more interested in international organizations.”
CNBC has reached out to the Trump campaign for comment.
— CNBC Rebecca Picciotto contributed to this story.
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