Economic Expert Analyzes the Risks of Trump’s Import Tariffs

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Chief Economic Advisor at Allianz SE, Mohamed El-Erian, expressed critical concerns regarding President Donald Trump’s imposition of widespread import tariffs, indicating that these trade policies could heighten the risk of a recession in the United States. His remarks were made during an interview at the Ambrosetti Forum in Cernobbio, Italy.

Potential Economic Consequences

El-Erian highlighted that the introduction of reciprocal tariffs has the potential to negatively influence not only U.S. economic stability but also the broader global economy. He noted a significant shift in growth expectations, estimating a 50% probability of a recession occurring in the U.S. He warned that inflationary pressures might rise sharply, forecasting an increase in inflation expectations to 3.5%.

U.S. Growth Outlook

Despite his cautious outlook, El-Erian stated that a recession isn’t a foregone conclusion due to the resilient nature of the U.S. economy. He projected growth for 2023 to be between 1% and 1.5%, a substantial downward revision from the International Monetary Fund’s earlier estimate of 2.7%.

“If we approach 1%, we could reach what is referred to as ‘stall speed’,” El-Erian remarked. “At that point, the economy would lack the momentum for necessary resource reallocations, significantly increasing the risk of a recession.”

Market Perceptions and Inflation Impact

El-Erian raised concerns about market misconceptions regarding the inflation impacts of Trump’s trade strategies. He emphasized that initial reactions have mostly revolved around growth concerns, while the potential ramifications for other economies remain uncertain. He also pointed out the implications for the Federal Reserve’s monetary policy as the situation unfolds.

Federal Reserve’s Future Policies

Recent data has indicated that core inflation in the U.S. is rising, with the core personal consumption expenditures index registering its highest monthly gain in over a year. El-Erian anticipated that if monetary policy proceeds normally, “we might only see one rate cut, if any,” contradicting market speculations of multiple cuts over the year.

According to the CME Group’s FedWatch tool, markets currently predict four rate cuts for the year. The Federal Reserve held its key interest rate steady at a range of 4.25% to 4.5% during its last meeting, adjusting its U.S. growth forecast downward while suggesting two rate cuts could be on the table through 2025.

Global Economic Connections

El-Erian noted that European currencies experienced gains against the U.S. dollar following the announcement of Trump’s tariffs. However, he cautioned against expecting sustained dollar weakness.
He explained, “Market reactions have reflected lower U.S. growth and anticipated interest rate declines, which led to a depreciation of the dollar index. However, the realization that a slowdown in the U.S. may lead to a sharper deceleration elsewhere could stabilize the dollar.”

Conclusion: Economic Discontent and Divergent Views

As the implications of Trump’s tariff policies unfold, economists remain divided on their long-term impact. El-Erian posited that while there is widespread agreement on the short-term difficulties these tariffs cause, there is no consensus on potential future benefits: “There’s a clear consensus on the pain caused by these tariffs now, but whether there will be an offsetting gain later is still up for debate.”

Contributions to this report were made by CNBC’s Jeff Cox and Steve Liesman.