| I’m Chris Anstey, an economics editor in Boston. Today we’re looking at how the US tariff shock will impact global prices. Send us feedback and tips to ecodaily@bloomberg.net. And if you aren’t yet signed up to receive this newsletter, you can do so here. - President Donald Trump said he is open to reducing tariffs if other nations offer something “phenomenal” in negotiations.
- Republicans are considering creating a new tax bracket for those earning $1 million or more, with a top rate of around 39% to 40%.
- Coming up: The US jobs report will probably show that hiring remained healthy last month and the unemployment rate held steady at a historically low level.
For the second time in five years, the global economy is facing a massive supply shock. But unlike the Covid crisis, which affected most of the global economy in an inflationary way, Trump’s historic tariff hikes are likely to trigger divergent reactions in price levels. “This is going to be pretty deflationary for large sections of the rest of the world, while for the US it’s going to be intensely inflationary,” Thomas Gatley, a senior analyst at Gavekal Dragonomics, said in a webinar Thursday to discuss the tariffs. As the dust settled on Trump’s explosive announcement of “reciprocal” levies on most economies around the world, the magnitude of the restriction on China became apparent. The 60% rate bandied about on the campaign trail last year turns out to be more or less where Chinese goods now land in the tariff table. For some products, Commerce Secretary Howard Lutnick confirmed, it may be as high as 79%. Many of the economies that had set themselves up as China alternatives, such as Vietnam, received among the highest reciprocal surtaxes. Many of those were also notable importers of Chinese intermediate goods, which were incorporated into products exported to the US, Gatley said. That means China will, all in all, see about 50% of its exports affected, he said.  Traders work on the floor of the New York Stock Exchange, April 3, 2025. The S&P 500 closed down almost 5% Thursday after the Trump administration's tariff announcement Photographer: Michael Nagle/Bloomberg Assuming the tariffs are put in place and stick, and US consumers respond by buying other items, that means that whatever China’s overcapacity challenge was before, it’s all the worse now. And there’ll be a whole lot of goods looking for new buyers. The European Union, in particular, stands to be “deluged” by cheap manufactured goods, Gatley says. Indeed, Robin Winkler, chief Germany economist at Deutsche Bank, sees exactly that dynamic. An export diversion to Europe is “likely inevitable” as China seeks to deal with its production surfeit, he wrote in a note Thursday. “European manufacturers are likely to face even stiffer price competition in EU and other non-US markets going forward.” The bottom line in terms of prices: “a potential export glut out of Asia would likely be disinflationary,” and the European Central Bank is likely to cut interest rates faster as a result, Winkler said. As for China, it’s a straightforward call. UBS’s chief China economist Wang Tao said that “we expect China’s deflationary pressure to intensify given the large negative external demand shock.” American households, meantime, will suffer yet another upwards price shock in the coming weeks and months. “The breadth of the tariffs has greatly diminished the possibility for trade diversion that holds down the inflationary effects,” Wang’s US counterpart, Jonathan Pingle, and his team wrote. The Federal Reserve’s preferred inflation gauge, the core PCE price index, is now seen climbing roughly 4.6% this year, or about 2 percentage points more than UBS predicted last month. The Best of Bloomberg Economics | - IMF Managing Director Kristalina Georgieva warned the US’s sweeping tariff campaign presents “a significant risk to the global outlook,” while Bank of Japan Governor Kazuo Ueda said US tariffs have added uncertainty.
- France ruled out further spending cuts to meet its deficit reduction target if a trade war hammers the economy.
- Vietnam’s trade ministry has asked the Trump administration to put on hold its planned 46% tariff on imported Vietnamese products and engage in negotiations.
- The global trade war is tipping the balance at the Bank of England toward more rate cuts, investors and economists say.
- Poland’s central bank chief surprised markets by saying that he may personally file a motion to cut rates as soon as May.
- Growing numbers of Indian millennials are opting for destination weddings in Asia and beyond, lifting economies in countries like Vietnam, Turkey, and Mexico.
The US and/or the global economy is now more likely than not headed toward a recession, according to updated JPMorgan Chase calculations in the wake of Trump’s reciprocal tariffs. The bank lifted its risk assessment for that outcome to 60% from 40% previously. “These policies, if sustained, would likely push the US and possibly global economy into recession this year,” JPMorgan economists led by Bruce Kasman wrote in a note Thursday. That doesn’t mean a slump is a “foregone conclusion,” they added. “The current positioning of the US and global expansion points to limited vulnerability that might suggest a relatively mild downturn. But recessions are inherently unpredictable.” “At a basic level a tariff is a tax increase” on household and business purchases of imported goods, the team wrote, and the measures that have been unveiled so far would be “on par” with the biggest postwar tax hike — signed in 1968 to help cool an overheated Vietnam war-era economy. In this case, “the implied tax hike from tariffs is set to be disproportionately felt by middle- and lower-income households,” which, while they spend disproportionately less, “are still a big share and are more reactive to income shocks,” the JPMorgan team wrote. | 
