Economic Impact of Trade Tariffs

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

Given the plan to have the steel & aluminum tariffs jump to 50% this week, I wanted to share data on the downstream industries whose cost structures are most impacted by this action. I've done this by using the latest benchmark use table from the input-output accounts (https://lnkd.in/eQdPji9) and calculated each industries' combined use of (i) Iron and steel mills and ferroalloy manufacturing [331110]; (ii) steel product manufacturing from purchased steel [331200]; (iii) Alumina refining and primary aluminum production [331313]; and (iv) Aluminum product manufacturing from purchased aluminum [33131B]. I then summed the use across these four commodities and divided this sum by each industries' total intermediate inputs (which includes all goods, utilities, and services). Below are the top sectors. Thoughts: •For many industries in fabricated metals (starting with NAICS 332), we see steel and aluminum make up more than 40% of the cost structure. If we assume that domestic prices ultimately rise something like 35% from a non-tariff scenario, that would represent a 15% increase in costs. This is a conservative estimate because I'm using all intermediate inputs as the denominator; if I used only goods and utilities, this figure would be much higher. •As expected, we see substantial impacts on transportation equipment (the major impact on military armored vehicles is a bit ironic) and machinery. Transportation equipment and machinery are two sectors where the USA is very globally competitive; these tariffs make us less competitive by raising producers' costs. For example, the last thing John Deere needs is to be paying higher prices for steel and aluminum as it tries to compete with European rivals for business in Australia. •It's worth again stressing these affected downstream industries employ far more people than employed in making steel and aluminum. This is why tariffing upstream industries has been termed "Self-Harming Trade Policy" (see https://lnkd.in/gWgxQjtY). Implication: many industries will be starting this week with the reality that they are looking at their costs rising substantially due to POTUS's steel and aluminum tariff escalation. This is precisely the type of action that makes the FOMC less likely to reduce interest rates anytime soon. #supplychain #economics #shipsandshipping #manufacturing #freight

We are thrilled to launch our latest research, uncovering the cost of new US tariffs on UK retailers with partner ESW. For UK non-food retail exporters, the US has been a fast-growing market since Brexit, outpacing domestic growth to reach £4.1bn in 2024. However, the US introduced a baseline 10% import tariff on imports from most trading partners, including the UK, alongside a 30% tariff on certain Chinese imports. This has immediate implications, including: ➡️ Increased landed costs: Margin pressure from baseline and reciprocal tariffs. ➡️ China-origin complexity: Disrupted DTC models due to loss of the $800 de minimis threshold. ➡️ Product strategy pressure: Strategic product withdrawals and sourcing shifts to navigate cost volatility. ➡️ Market hesitation: Delayed or reduced expansion plans into the US. By modelling trade flows and tariff rates on retail products, we calculate that UK non-food retail exporters are having to mitigate £618.5m in additional tariff costs from new US policy. Faced with rising tariff costs and mounting uncertainty, UK retailers have begun to implement a range of mitigation strategies to offset these additional costs. Four key tactical responses include: ➡️ Passing costs on to consumers: Some brands, supported by pricing power or strong equity, are passing on a portion of tariff costs – but this remains limited. Only 20% of the total cost is being passed through to consumers. ➡️ Absorbing costs: Around 16% of the tariff impact is being absorbed directly through reduced profit margins. ➡️ Exposure management: Retailers are reassessing product-level viability, pausing activity or withdrawing SKUs where tariffs have rendered them commercially unviable. ➡️ Cost efficiencies: Businesses are pursuing internal savings through strategic restructuring, supplier renegotiation and leaner operational practices. Specific responses by retailers vary by product, category and market, and will evolve over time. Read more about the responses in our latest research by downloading the full report here: https://lnkd.in/eVuYvkcb

So much chatter in recent days about the risk of new #tariffs. Some argue that tariffs are just a tax that will be passed through to consumers pushing inflation higher; others make the case that it won't be passed through because of buyer price sensitivity and sellers will just suffer an erosion in profit margins. As is often the case, reality probably lies somewhere between the absolutist claims. It depends on the market you're in. Tariffs do not uniformly get passed along to end consumers. The extent of pass-through depends on price elasticities of demand, and importantly, the degree to which end-consumers can substitute away from the tariffed product. If there are few alternatives, passthrough will be substantial and consumers will bear the incidence of the tax. If there are credible alternatives, passthrough is less and producers will bear the incidence of the tax. The takeaway is: If policymakers aspire to enact new tariffs while minimizing the risk of accelerating consumer price inflation (and the structurally higher interest rates that accelerating inflation implies), robust competition policy vigilance and enforcement is critical -- to ensure that consumers have lots of credible consumption alternatives. Alternatively, if policymakers are willing to accept an temporary period of accelerating inflation -- a wise path would be to focus on tax credits to ensure profit reinvestment and longer-term supply expansion. #economy #trade #economicpolicy

gas prices are now increasing at a faster rate than crude oil, with significant macroeconomic implications. Recent analysis of 15 economies by Oxford Economics indicates that the inflationary impact will be highly uneven. European economies that are structurally dependent on imported gas, particularly Italy, Germany and the UK, are exposed to the largest effects. Italy stands out. Inflation in the fourth quarter could be more than one percentage point higher than previously forecast. Across the Eurozone and the UK, projected inflation may rise by over half a percentage point. In contrast, the United States is expected to see a comparatively modest increase of around 0.2 percentage points. Canada appears to be the least affected among the economies assessed. This divergence reflects underlying structural differences in energy systems, import dependency and fuel mix. It is another reminder that energy security, electrification and efficiency are not only climate issues but central pillars of economic resilience and price stability.

On March 12, the U.S. will expand 25% tariffs on a much wider range of steel and aluminum products, removing all country exemptions and eliminating individual exclusions for importers.   These sweeping changes will significantly impact costs and supply chains:   ▪️ Steel imports affected will rise from 7M to 26M metric tons, with derivative products (elevator parts, prefabricated buildings, etc.) pushing the total tariff impact to $72B. ▪️ Aluminum imports affected will jump from 2.3M to 3.5M metric tons, with derivatives (aircraft parts, appliances, baseball bats, etc.) bringing the total to $132B. ▪️ The cost burden on importers will total $22.4B for steel and aluminum, plus up to $29B more for derivative products—over $51B in total. ▪️ Industries most affected: The automotive, construction, and machinery sectors—which rely heavily on imported metals—face significant cost increases and supply chain pressures. ▪️ Key trading partners impacted: Canada, the EU, Japan, Mexico, South Korea, Brazil, and Argentina—who account for approximately 75% of U.S. steel imports—will now be fully exposed to these tariffs.   Unlike in 2018, there will be no carve-outs or exclusions. The previous system allowing U.S. companies to apply for tariff exemptions has been shut down. Potential retaliation is looming. The EU and Canada have already signaled possible countermeasures, though details remain unclear. US Tariffs are unfolding in multiple chapters, each impacting a different group of trade partners and sourcing nations. Potentially no major trade partner will be wholly exempt. It is important for businesses to plan ahead and develop scenarios to understand key risks they might face.   Would love to hear from leaders in manufacturing, metals, and trade—how are you preparing for these shifts? https://lnkd.in/gC9jhC-A.  

President Donald Trump has installed tariffs to bludgeon economic rivals and power US manufacture and industry. Instead, it has begun to inflict pain on US commercial real estate development. Developers say that the price of core building materials like steel, aluminum, copper, and tiling have shot up in recent weeks as tariffs have taken effect or been threatened. Joseph Taylor, the CEO of Matrix Development Group, said that the cost of steel for a warehouse his firm is building in Newark, NJ, just went up by $2 million. Another developer raising a warehouse outside of Washington DC said Nucor Corporation, the project's steel manufacturer just alerted it that steel costs were rising by 15%. Dain Drake, a principal at DeSimone Consulting Engineering, said that fabricated steel costs have risen by 20% in recent weeks, after the Trump administration announced 25% tariffs on steel and aluminum imports. Those tariffs went into effect on March 12. Why are rising international materials costs affecting the price of US made steel and other materials? "Greed-flation," according to Richard Jantz, an executive at Cushman & Wakefield who manages construction projects, including interior office renovations. With foreign competition growing in cost, domestic manufacturers see an opportunity to jack up their prices too. He said that a large New York City office occupier just called off a $20 million renovation of a space it occupies in the city after materials charges shot up as a result of the tariffs. 2025 was expected to be a buoyant year for the construction industry, with interest rates on the decline and inflation seemingly under control. Joseph Mizzi, the president of Sciame Construction, LLC, said that construction executives were now starting to worry. "We lay in bed at night thinking about things that might happen," Mizzi said. "So yeah, it's on our radar for sure." Read the story at Business Insider: https://lnkd.in/eUw8JQEP #tariffs #trumpeconomy #realestatedevelopment

This research report provides a comprehensive analysis of the strategic challenges & options for Indian exporters navigating the volatile global trade environment, with a specific focus on the impact of US tariff escalations. The study assesses the economic impact of tariffs, which have increased by up to 50% on key Indian exports, targeting sectors such as textiles, gems & jewellery, seafood, agriculture, & auto components. These tariffs significantly disadvantage Indian exporters compared to peers like Vietnam, Bangladesh. Key Findings Report highlights several key findings on the impact of US tariffs: Targeted Sectors: Recent tariffs have focused on textiles, pharmaceuticals, automobile components, and steel products, as well as high-growth sectors like solar panel components and electronic goods. Loss of Competitiveness: Indian exporters are losing their price advantage, with added tariff costs of 25-35% making Chinese and ASEAN products cheaper in the US market. Alternate Trade Routes: Many exporters are employing "tariff-jumping" strategies by rerouting goods through third countries like Vietnam, the UAE, and Bangladesh to minimize direct tariff exposure. MSME Stress: Indian Micro, Small, and Medium Enterprises (MSMEs), particularly in apparel and handicrafts, have reported a 20-40% drop in export orders due to a lack of capital and awareness to quickly restructure their supply chains. Modest Macro Impact: While some analyses predict potential export losses of up to $14 billion or a 30% decline in U.S.-bound exports, the overall effect on India's economy is projected to be modest due to trade diversification, with one report suggesting a 0.19% drop in GDP Strategic Recommendations The study proposes strategic options for both exporters and policymakers. Exporters are already responding by redirecting exports to Europe and the Middle East, and exploring manufacturing bases in third countries or the US to circumvent tariff barriers. The report explores strategic options for Indian exporters, including: Market Diversification: Moving beyond the U.S. to markets in Africa, Europe, and Latin America. Product Upgradation: Meeting higher quality and compliance standards to create "premium exports". Legal Structuring: Utilizing Double Taxation Avoidance Agreements (DTAA) and routing exports through third countries like Vietnam or the UAE for tax minimization. For policymakers, strategies include pursuing bilateral trade negotiations, leveraging FTAs (such as the UAE-India CEPA), and revising export incentives under schemes like RoDTEP (Remission of Duties and Taxes on Export Products). The government is also cautiously exploring potential retaliatory tariffs and nuanced policy tactics like the "zero-for-zero" tariff approach.  The ultimate objective of this research is to evaluate strategies that can build resilience and future-proof India's export ecosystem in a volatile global trade order #startups #entrepreneurship #startup

What are the consequences of the new US tariffs on steel and aluminum?   The industrial sector has been on edge since February 10, when Donald Trump announced a tariff hike of up to 25% on #aluminum and #steel imports, effective March 12.   And for good reason. If implemented as announced, BCG projects these tariffs will: ➡️ Add $22.4 billion to the cost of imported steel and aluminum, plus up to $29 billion for derivative products. ➡️ Expand the scope of affected steel imports from 7 million to 26 million metric tons, doubling the value of tariffed goods to $72 billion. For aluminum, this figure could reach $132 billion. ➡️ Hit US metals manufacturers the hardest, as they rely on imports for 24% of their steel and 35% of their aluminum.   With no exemptions this time, industrial leaders must act fast—renegotiating supplier contracts, diversifying sourcing, and optimizing supply chains to mitigate the impact.   🔎 More details in BCG’s analysis: https://lnkd.in/eAax_PvW

A perfect storm for households & Corporates as Judicial, Geopolitical & Electoral Cycles Collide? : The Supreme Court’s Aug 2025 order on cost-reflective tariffs addresses a core distortion: regulatory assets of ₹3L-cr. But implementation timing creates a policy trilemma from the Convergence or collision of 3 cycles: 1. Judicial: Liquidating deferred costs is non-negotiable post SC order- Power tariffs may rise in certain states as they clear Rs3L-cr of deferred costs post SC order. No more kicking the can. This clean-up ends a decade of hidden costs. But now It will have to be priced in by households and companies. 2. Geopolitical: Iran conflict transmits crude volatility to domestic fuel - Iran war pushes crude & crude product prices up. LPG + fuel price revisions expected now as elections end today 3. Electoral: Fuel price suppression may end after the state poll results today. There will be a policy bind. Fiscal space is limited due to discom debt of ₹7.5L-cr. RBI can’t cut rates if supply-side inflation spikes. Why it matters for households & companies: For Households: electricity, fuel and other household items may get pricier as the cascading effect takes place and may impinge upon consumption and savings even without a harsh El Nino impact For companies: - Input costs: Electricity is 3-8% of manufacturing opex. Tariff rise hits directly. - Logistics: Diesel revisions post elections could lift freight 2-4%. - Demand: Household budgets face a 3-front squeeze, impacting discretionary spend. H1 of FY27 may warrant re-pricing of contracts, hedging of energy exposure & stress-test for stagflation-lite. Fiscal-Monetary Trade-off: States lack fiscal space to absorb shocks given Rs7.5L-cr discom debt. The #RBI faces supply-side inflation that rate tools can’t fix without hurting growth. Blanket subsidies risk fiscal slippage; inaction risks household distress. Path Forward: - Staggered, predictable tariff hikes vs cliff-effect - Direct benefit transfers for BPL consumers only - Accelerate UDAY 2.0-style discom reforms to cut ACS-ARR gap #Inflation #Energy #EnergyReforms #FiscalFederalism #MonetaryPolicy #PolicyMatters #PublicPolicy