Tariffs are falling, debts are rising: Trump and the economic crisis in the USA

Tariffs are falling, debts are rising: Trump and the economic crisis in the USA

The USA is facing a complex economic situation characterized by high national debt and ongoing trade conflicts. Donald Trump recently announced tariffs that were postponed or implemented at the last minute. Tariffs on certain goods will fall from 145% to 30%, but a base tariff of 10% will remain on all imports, as will industry-specific tariffs on cars, steel, aluminum, semiconductors and possibly pharmaceuticals. Experts warn that these measures can reduce consumption and lead to weak growth. Walmart, for example, has already announced that it will increase prices due to higher tariffs. The average effective import tariff in the US is now 15%, which is six times higher than before Trump took office and represents a major challenge for consumers.

While the S&P 500 Index has recovered since the beginning of the year, the prospects for a stabilized economy are uncertain. Fed Chairman Jerome Powell expressed concerns about possible permanent supply shocks and is unwilling to cut interest rates. Meanwhile, the U.S. government is incurring nearly $2 trillion in new debt annually, causing total debt to outpace annual economic output. Moody's has downgraded the US's credit rating, meaning the country has lost the top rating from all three major rating agencies. This could have a long-term negative impact on the interest of foreign investors, although the US is still considered an attractive destination for direct investment, mainly due to falling taxes and a large sales market.

The impact of the trade conflict on the Eurozone

The trade conflict between the USA and Europe not only has an impact on the American economy, but also on the European economy. The monetary policy of the European Central Bank (ECB) is influenced by these tensions. In order to strengthen European defense, countries in the euro zone are forced to take on hundreds of billions in debt. This increases the risk of extreme reactions in bond markets, particularly in highly indebted countries such as Italy and France.

During the Euro crisis of 2011/2012, interest rates on government bonds rose, which affected investor confidence. To avoid a similar decline, the ECB has since supported bond prices through extensive purchases. The most important key interest rate, the deposit rate, has already been cut from 4.0 to 2.75 percent, with a further cut expected at the next ECB meeting. This cut could be accompanied by uncertainty over a global tariff war that could potentially trigger a spike in inflation.

Interest rate decisions and inflation outlook in the euro area

ECB President Christine Lagarde expressed concerns about the uncertainty of the inflation outlook in the euro area. The inflation rate in Germany is currently 2.3 percent and in the euro zone 2.5 percent, far away from the medium-term target of 2.0 percent. Several ECB members, including Isabel Schnabel, are calling for a debate about a possible stop to interest rate cuts in order to prevent interest rates from remaining too low and thus leading to high inflation and financial crises in the long term. Pressure on central banks is growing worldwide, which could endanger the independence and stability of monetary policy makers.

Overall, the economic situation remains tense in both the US and Europe, while financial market players are closely monitoring how political decisions in both regions will impact the economic environment.