Trump’s Tariffs Plan Would Raise Prices for Americans, Model Shows

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(Bloomberg) -- The tariff plan that Donald Trump has vowed to impose would likely send inflation above the Federal Reserve’s target and pressure the central bank to raise interest rates, Bloomberg Economics said in a report.

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The presumptive Republican nominee is promising to slap 60% tariffs on imports from China and 10% duties on those from the rest of the world as he campaigns for a second term.

While there are many questions around the pledge — such as whether Trump would really turn it into reality — Bloomberg Economics plugged those numbers from his plan into a model for the US economy to estimate the impact. It found that following through on the campaign rhetoric would hurt US growth and raise the cost of living for Americans.

The Bloomberg Economics model shows the proposal sending the core personal consumption expenditures price index, the Fed’s preferred gauge of prices, up to 3.7% by the end of next year, well above policymakers’ 2% target. Economists surveyed by Bloomberg, on average, expect 2.1% inflation in 2025.

US INSIGHT: Trump’s 60% Tariffs May Push Powell’s PCE to 3.7%

Trump’s plans would leave consumer prices 2.5% higher and gross domestic product 0.5% lower after two years, according to the model. That could pressure the Fed to choose between raising interest rates to curb inflation or cutting them to bolster economic growth.

Uncertainty around the projections is elevated. “There’s lots of variables in play and no recent precedent for tariffs at that level, so forecasting the impact is tough to do,” said Tom Orlik, chief economist and one of the report’s authors. “Still, we’d expect outsize tariffs to have an outsize impact, and our results underscore that risk.”

Trump fought a trade war with Beijing in his first term, though the US International Trade Commission, an independent US government agency, in a study released last year found a limited inflation impact from tariffs that he imposed on Chinese goods.

Duties levied on more than $300 billion in imports using section 301 of the Trade Act of 1974 only increased prices of US products by 0.2%, the commission found. The PCE index during Trump’s administration averaged just 1.6%.

But this year’s campaign promise from the former president who dubbed himself “tariff man” is far more sweeping than even the tariffs of up to 25% that he previously imposed on Chinese goods.

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