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Trump’s tariffs slap in the face! Research confirms that the United States pays for itself, will it become difficult for the Fed to cut interest rates?
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Hello everyone, today XM Forex will bring you "[XM Forex Decision Analysis]: Trump's tariffs slap in the face! Research confirms that the United States pays for itself, is it harder for the Federal Reserve to cut interest rates?". Hope this helps you! Original content below:
Early signs suggest that U.S. www.xmmen.companies and consumers will bear the brunt of new U.S. import tariffs, contradicting President Trump’s claims and www.xmmen.complicating the Federal Reserve’s fight against inflation.
Trump has boldly predicted that other countries will pay for his protectionist trade policies, and believes that exporters will be willing to bear these costs themselves in order to gain a foothold in the United States, the world's largest consumer market.
But academic studies, surveys and www.xmmen.comments from the business www.xmmen.community show that in the first months of Trump’s new trade regime, American www.xmmen.companies are footing the bill and passing on some of the costs to consumers — and there may be more price increases to www.xmmen.come.
Alberto Cavallo, a professor at Harvard University, said in an interview: "Most of the costs seem to be borne by American www.xmmen.companies. We have seen the costs gradually passed on to consumer prices and facing obvious upward pressure."
The White House spokesman said: "Americans may face a tariff transition period," but the costs "will ultimately be borne by foreign exporters." The spokesperson added that www.xmmen.companies are pushing to diversify supply chains and move production to the United States.
Who bears the tariffs?
Cavallo and researchers Paola Llamas and Franco Vazquez have been tracking the prices of 359,148 items ranging from rugs to coffee at major online and brick-and-mortar U.S. retailers. They found that since Trump began imposing tariffs in early March, the price of imported goods has increased by 4%, while the price of domestic goods has increased by 2%.
The largest increases in imported goods were those that cannot be produced domestically in the United States, such as coffee, or those imported from expropriatedProducts from countries that impose huge tariffs. Although the prices of these goods have increased significantly, they are generally far lower than the tariff rates of related products, which means that sellers are also bearing part of the costs.
However, U.S. import prices excluding tariffs show that foreign exporters have been raising prices in dollar terms and passing on some of the impact of the dollar's depreciation against their currencies to U.S. buyers.
Researchers at the Yale Budget Laboratory said in a blog post: "This suggests that foreign producers, if they are bearing the impact of U.S. tariffs, are not bearing much of the impact, consistent with previous economic research."
Export price indexes for various countries also reflect the same situation. The cost of exports from China, Germany, Mexico, Türkiye and India has all risen, with the exception of Japan.
The full impact of the tariffs has not yet been felt
All parties are still trying to adapt to Trump's tariffs, a process expected to last several months, as exporters, importers and consumers are still in a game over who will bear the approximately $30 billion in monthly tariffs.
Cavallo added: "We should not think that this is just a one-time price jump, www.xmmen.companies are looking for ways to soften the blow and spread the price increases over a longer period of time."
So far, European car manufacturers have been working hard to absorb more of the price impact, but including Consumer www.xmmen.companies including Tide detergent maker P&G PG.N , RayBan maker Essilor Luxottica ESLX.PA and Swiss watchmaker Swatch UHR.S have already raised prices.
Data show that since Trump launched the trade war, about 72% of www.xmmen.companies in Europe, the Middle East and Africa have reported price increases. Only 18 www.xmmen.companies warned of an impact on profit margins. Prices of Chinese products ranging from clothing to electronics sold in the United States have risen strongly.
All this has paved the way for rising inflation in the United States. The Fed cut its benchmark interest rate last month amid concerns about a weakening job market, but policymakers are divided over whether tariff-driven inflation is likely to subside.
The Peterson Institute for International Economics estimates that inflation over the next year will be 1 percentage point higher than without higher tariffs, but will then fall back.
Analysis of the potential impact on the US dollar
Trump’s tariff policy has a two-way impact on the US dollar, but the logical chain of pushing up inflation in the short term → restricting the Federal Reserve’s interest rate cuts → supporting the US dollar dominates. However, this support hides huge long-term risks.
Uncertainty about trade policy and its potential drag on global economic growth may trigger fluctuations in global financial markets. In this environment, the U.S. dollar, the world's leading safe-haven currency, sometimes strengthens due to the influx of funds.
The strength of the US dollar may be "puffy". Tariff-driven inflation and interest ratesMaintaining a high level www.xmmen.comes at the expense of U.S. economic vitality and long-term www.xmmen.competitiveness. Once the market focus shifts from inflation to slowing economic growth, or the weaponization of the U.S. dollar causes its international credibility to be damaged, the U.S. dollar will face tremendous downward pressure.
The tariff policy has brought a "short-term positive but long-term negative" situation to the US dollar. It has created a "stagflation" environment of high interest rates, high inflation, but slowing potential growth. In this environment, the trend of the US dollar will be very volatile. Behind its short-term strength are hidden concerns about its long-term value. The market needs to pay close attention to inflation data, the Fed's stance, and the strength of U.S. economic data to determine which logic will prevail in the market.
The above content is all about "[XM Foreign Exchange Decision Analysis]: Trump's tariffs are a slap in the face! Research confirms that the United States pays for itself. Is it more difficult for the Federal Reserve to cut interest rates?" It was carefully www.xmmen.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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