Economic Experts Warn of Negative Consequences of US Tariffs on Economy and Budget
According to the Ifo Institute, the economic policies of US President Donald Trump are likely to harm the US economy. While the proposed increase in import tariffs may lead to short-term gains in revenue, it would significantly slow down the US economic growth and further exacerbate the budget deficit, Ifo President Clemens Fuest said on Monday. Fuest stated that the strategy of using tariffs to balance the state budget is built on sand, as the negative effects on growth and higher consumer prices would outweigh the expected revenue gains.
Fuest’s assessment is based on a study by the Washington-based Peterson Institute, which examines the impact of tariffs on the US economy and the state budget. The study found that a 10% import tariff would lead to increased revenue, but income tax revenues would decline. In the end, the net gain in revenue would be around $160 billion per year. Concurrently, the US GDP would shrink by 0.46 dollars per dollar of additional revenue. Higher tariffs of 20% would have even more pronounced negative effects, with a GDP decline of 1.80 dollars per dollar of additional revenue.
Furthermore, Fuest sees the risk of higher interest rates for US government bonds as a consequence of the tariff policy, which would further burden the state budget. An increase of 0.5 percentage points would translate to an additional interest burden of around $150 billion per year. “The numbers show that the US tariff strategy will not bring the expected fiscal successes. Instead, it will further weaken the US economy” Fuest said.