Trump tariffs could spark inflation if global trade responds, says Kashkari

Minneapolis Federal Reserve President Neel Kashkari on November 10 stated that President-elect Donald Trump’s tariff proposals could worsen long-term inflation if global trading partners were to strike back, according to a report by CNBC. One-time tariffs, Kashkari said on CBS’ “Face the Nation,” “shouldn’t have an effect long run on inflation.”

Tit-for-tat tariffs can propel inflation

“The challenge becomes if there’s a tit-for-tat and its one country imposing tariffs and then responses and it’s escalating. That’s where it becomes more concerning, and, frankly, a lot more uncertain,” Kashkari said, the CNBC report explained further.

During his first term, Trump essentially sparked a trade war with China when he imposed a series of import taxes on Chinese goods, which triggered the country to retaliate with its own set of tariffs on the US.

Trump has proposed 60 per cent tariffs on China

One of Trump’s primary economic proposals for his second term is to impose universal tariffs on all imports from all countries, with a specifically targeted 60 per cent rate on China.

Economists, Wall Street analysts and industry leaders have repeatedly expressed concerns over the inflationary impact of that hardline trade approach, especially since inflation has just begun to cool from its pandemic-era peaks.

“We’ve made a lot of progress in bringing inflation down,” Kashkari said. “I mean, I don’t want to declare victory yet. We need to finish the job, but we’re on a good path right now.”

The Fed on Thursday passed its second consecutive interest rate cut, continuing its effort to loosen monetary policy as inflation approaches the central bank’s 2% target. Kashkari said he expects another cut to come in December, but that will depend on “what the data looks like” at that time.

As for Trump’s other major policy proposals like a sweeping immigrant deportation plan, Kashkari noted that the inflation threat is still unclear and so the Fed is still taking a “wait and see” approach before adjusting its policy.

Trump and his backers like billionaire Tesla CEO Elon Musk have also been outspoken about their desire to give the president input on Fed policy decisions. The central bank views its political independence as a core feature that allows it to shape monetary policy exclusively based on the health of the U.S. economy, not election incentives. But Kashkari said he is not concerned about politics permeating Fed decisions.

“I’m confident that we will continue to focus on our economic jobs,” he said. “That’s what should be dictating what we’re doing and that is what’s dictating what we’re doing.”

Market participants and global investors will carefully see follow these developments and the next steps of the Trump administration for taking informed investment decisions.