Trump tariff threats cast shadow over global economy

The Bank for International Settlements (BIS), often referred to as the “central bank of central banks,” has raised serious concerns over the impact of President Trump’s trade policies on the global economy. Despite forecasting that the US and most advanced economies will steer clear of a recession this year, the BIS has warned that escalating policy uncertainty could destabilise financial markets and economic growth.

Key figures from the BIS, including Deputy Head Frank Smets, highlighted the damaging effects of uncertainty related to tariffs, fiscal policy, immigration, and regulatory changes. These policies, they argue, may act as a “negative demand shock,” reducing spending, curtailing investment, and hurting business confidence. If implemented, tariffs could worsen the situation further by transitioning from demand-driven challenges to inflation-inducing supply shocks.

US equity markets and the dollar have seen volatility as mixed signals emerge from the White House. While the Trump administration continues its protectionist push, including reciprocal tariffs against trade partners such as the UK and the EU, economic advisors have suggested a willingness to accept slower growth as part of a broader budget deficit reduction strategy.

Analysts at Goldman Sachs have already revised projections for US annual growth, dropping it from 2.4 per cent to 1.7 per cent, citing tariff risks and delayed business investment as primary drivers of the downgraded outlook. According to them, higher tariffs effectively reduce real incomes by increasing consumer prices, tightening financial conditions, and generating broader economic uncertainty.

Scott Bessent, the US Treasury Secretary, described the process as a necessary “detox period” for the economy, although many experts believe such rhetoric compounds market instability. Jan Hatzius, Chief Economist at Goldman Sachs, identified three main areas of concern: rising consumer costs, policy ambiguity discouraging investment, and adverse financial implications of tightening conditions.

While the chances of an immediate US recession remain relatively low, the BIS and leading economists have cautioned that ongoing unpredictability could erode consumer and business confidence. As trade tensions simmer, businesses and investors face mounting difficulties in planning for the future, potentially broadening economic anxieties beyond the United States and into global markets.