The Impact Of Tariffs Is Not As Bearish As Predicted

2025-02-14 06:15:00 ET

Summary

• There are many media-driven narratives about the impact of tariffs on the economy and the markets.
• Despite recent market concerns over the impact of tariffs, our previous experience suggests that stagflation is not likely to be the case.
• Despite the barrage of negative headlines, concerns about inflationary impacts, and economic outcomes, the market ultimately weathered the trade war.

There are many media-driven narratives about the impact of tariffs on the economy and the markets. Most of them are incredibly bearish, predicting the absolute worst possible outcomes. For fun, I asked ChatGPT what the expected impact of Trump's tariffs will likely be. Here is the answer:

"One of the immediate consequences of increased tariffs is higher consumer prices. Tariffs function as an import tax, and companies that rely on foreign goods often pass these costs onto consumers. This could lead to higher inflation, particularly in electronics, automobiles, and household goods, where China plays a dominant role in supply chains.

Over the longer term, Trump's tariffs could contribute to stagflation-lower economic growth combined with persistent inflation-if businesses struggle to adjust. While the intended goal is to bring jobs and manufacturing back to the U.S., the broader economic risks suggest that tariffs could ultimately slow growth and raise costs for American consumers and businesses."

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