Doha: Qatar National Bank (QNB) predicts tariffs will be a cornerstone of US President Donald Trump's second term agenda, surpassing their role during his first term.
According to Qatar News Agency, in its weekly commentary, QNB highlighted the significance of trade as an engine of progress, emphasizing the importance of cross-border flows for global integration. The bank expressed concern that any significant changes to trade flows warrant the attention of policymakers, analysts, and investors.
Recent developments have seen President Trump dominating trade headlines, with initial relief about his trade stance following his inauguration proving short-lived. Early discussions involved threats of 25 percent tariffs on Canada and Mexico, and 10 percent tariffs on China. This was soon followed by talks of "universal tariffs" and "reciprocal tariffs" against all countries and products, as well as targeted 25 percent tariffs on steel and aluminum imports, leading to increased trade policy uncertainty.
The trade policy uncertainty index, which tracks the frequency of articles discussing trade policy uncertainty in major US newspapers, indicates that current trade uncertainty surpasses levels seen during Trump's first term (2017-2021). During that period, US average import tariffs rose from 1.5 percent to approximately 3 percent. If new tariffs on North America and China are implemented, the average could rise to 11 percent, the highest since World War II.
While Canada and Mexico have temporarily paused new tariffs, ongoing trade discussions are expected with other partners. Tariffs on the European Union and additional tariffs on China are anticipated, heightening the threat of protectionism and trade wars, especially as retaliations occur. Countries with significant trade surpluses with the US, such as China, the EU, Mexico, Vietnam, and Japan, are particularly susceptible to US trade pressures.
QNB also pointed out that tariffs are no longer solely tools for addressing "unfair" trade practices or correcting bilateral imbalances. They are now viewed as fiscal measures to generate revenue for the US government, relevant in a context where Trump's economic team seeks to creatively fund tax cuts and achieve fiscal consolidation, reducing the deficit from over 7 percent of GDP to 3 percent by 2028. With USD 4.1 trillion in US imports annually, tariffs provide a substantial tax base to help narrow the fiscal deficit.
As such, tariffs and trade disputes are expected to be more central to Trump 2.0 than Trump 1.0. QNB anticipates an increase in tariffs in the first half of 2025, with several implications for the US economy. In the short term, tariffs could cause a temporary inflationary shock on imported goods and services, affecting disposable income and growth. Trade uncertainty may also disrupt capital expenditure planning and foreign direct investment, leading to lower market optimism and investments.
Over the medium- and long-term, higher tariffs might benefit domestic manufacturing and services in the US but could reduce consumer disposable income, increase inefficiencies, and potentially lower potential GDP. QNB concluded that tariffs are likely to play a far greater role in Trump's second term agenda, with significant increases expected soon, potentially impacting inflation and investments in the short term while benefiting domestic producers in the long term.