The analysis of Donald Trump’s pricing policies is similar to shooting on a moving target. Having said confidently at the beginning of the weekend, there was “Nothing“Mexico, Canada and China could do to prevent the price of prices, Mexico and Canada managed to negotiate a stay on Monday.
It is a rare moment for mercy of economists. It is quite difficult to predict the effects of the American president’s policies, but much more difficult, while far too surprised everyone simultaneously, including Trump himself.
We do not know the following: if the American prices will occur; if they are temporary or permanent; Whether it is a negotiation program or a punishment. We do not know what reprisals from other countries will impose. All these things are crucial, even before entering the deep uncertainties that reside in the models of economists.
Economists should not, however, feel separate for particularly bad treatment. Announcing prices on weekends, the American president humiliated his secretary to the treasure who had praised a softer version of the prices Only a few days earlier. Scott Bessent had no idea either.
Trump had justified prices on Sunday on the basis of the guilt of the three countries in the American addiction to fentanyl, lax border security,, trade deficits and his Territorial ambitions on Canadian soil. Of course, its estimate of a Canadian trade deficit of $ 200 billion was roughly Four times too high. Trump also has no idea.
In a world where no one knows anything with certainty, here is an attempt to give you a context. One thing that I will not dwell on is the low price that Trump extracts for having removed the immediate tariff threat. Mexico seems to have promised to send troops to its northern border where they are already parked and Canada has promised to create a fentanyl tsar.
What was the size of the prices offered?
After Trump’s announcements, there were quickly flying fantastic sales numbers, such as the fact that the fact that the fact that the fact that the fact that the fact that the fact that the fact that the fact that 90% of lawyers consumed in the United States came from Mexico. But what we really want to know is the proportion of American imports that will face new prices.
Obviously, this number will change over time because we, importers, look for other suppliers, but it is a good starting point.
The graph below uses the latest figures from the American census office for the 12 months until November 2024, showing that around 40% of the total American imports came from Mexico, Canada and China. With raw oil imports from Canada over the same period of around $ 100 billion (assuming a selection price from Western Canada of $ 60 per barrel), just over half of these imports would attract A new price of 25% and the rest of 10%.
These figures allow another calculation of the rear of the envelope. With around 40% of imports faced with around 20% additional rate on average, we can lead to overall rate rates for the United States. If it is completely imposed and with constant trade patterns, the average weighted price rate would increase just under 8 percentage points.
By putting this in a historical context below, the announcement of Trump’s weekend was therefore enormous.
The prices were greater than the drop in tasks associated with the signing of the original general agreement on prices and trade (GATT) after the Second World War and the Smoot-Hawley prices which came with the Great Depression in the 1930.
Trump likes to compare his prices with those of the 25th American president, his republican colleague William McKinley, who imposed a price of 49.5% in 1890. Comparisons with the effects of McKinley prices also demonstrate important truths.
WE International Trade Commission data Shows that the weighted American average rate dropped after their taxation in October 1890 because the proportion of imports of clean American goods increased from 55% in 1891 to 41% in 1894.
Do not tell the president, who considers prices as a milk cow, but overall tariff income has also dropped because the trade in pricing goods has dropped so strongly.
The fact that commercial models are sensitive to major prices shows a key problem with the dotted line in the graph below, which does not assume any change in commercial models. It is therefore false if it is used as a prediction, but it is always a useful number only as an illustration of the scale. These prices are large.
In the 1890s, what McKinley also quickly found was that support for his republican party refused almost as quickly as pricing income. Surprise, surprise, people did not like higher prices.
McKinley’s party lost almost half of their seats During the 1890 elections for the House of Representatives only one month after the taxation of prices. Does Trump caught up? Who knows. Does he know? It doesn’t seem like him.
What is the size of the economic effects?
Now we know that, assuming that the constant trade patterns are a terrible base for a forecast, I will nevertheless stick to it because it is useful to demonstrate the scale. Goods imports are About 10% of the United States GDPAnd if the price of these goods increased by 8% (the size of the overall rate increase), the American price level would increase by approximately 0.8%. This is why economists suggest an effect on the inflation of Between 0.5% and 1%.
This is a reasonable number, but again a terrible forecast. For what? Because we do not know how much companies will use the prices as an excuse to pass through other price increases or if the prices will be absorbed by margins or by certain exporters in the United States.
The broader economic impact of Trump prices largely represents a tender shock for the United States and a demand shock for other savings. My colleagues from the FT monetary policy radar have writes a great article on this.
That said, scaling up economic effects is extremely difficult. We know that the prices and shocks of the supply chain are potentially very important for growth and inflation and also that the effects are almost always difficult to see in global economic models which tend to suppose large disturbances because They were estimated on very small changes.
In other words, it is probably wise to listen to Ngozi Okonjo-iweala, director general of the World Trade Organization, says that she says that a world trade war with tit-form prices could generate a “”catastrophic“Result. The IMF model illustrated in the graph below suggests that the commercial wars does little damage.
Are we really intelligent consumers?
American consumption expenses were in particular strong in the national accounts of the fourth quarter published Last week by the American office of economic analysis. Even more interesting, a large part of the real growth in spending came from lasting goods. These contributed 0.85 points of percentage of the annualized growth of 2.3% recorded in the fourth quarter.
Did American consumers provide prices and buyers before the price increase? Most likely. The data suggests that it is a plausible story that would probably be followed by a strike by buyers if steep prices persist.
What I read and watched
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A former Fed official has been arrested and accused of having adopted economic secrets in China. As Liza Tobin says Fabulous writing: “If someone from a Chinese university offers you $ 450,000 for part -time employment, runs away”
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Not that the position of the FT on the Trump trade war will surprise many people: the newspaper think it’s absurd
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A group of Europeans require more prices are fertilizer producers. They want anti -dumping tasks to be applied to Russia
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Martin Wolf is dark on long-term UK growth prospects
A graphic that counts
Before the excitement of the weekend about prices, I planned to delight you with an in-depth examination of the accommodation and its contribution to inflation in the United Kingdom. This is a history of fascinating problems with data measurement, comparisons of rental price trends with the United States and the important issue of actions and flows. Blame Trump that you’ve missed now.
While the Monetary Policy Committee of the Bank of England fears that the United Kingdom has more perseverance in the inflation of services than other savings, a large part of the problem of the United Kingdom with the prices of services is summarizes with rental inflation. The graph below shows that inflation of the UK services excluding rent was lower in the latest data than the United States or the euro zone.
It is difficult to see the United Kingdom as a special inflation problem that others do not share. We will see the interpretation of the BOE when it decides interest rates on Thursday.
