Trump tariffs to add 1-1.5pp to U.S. inflation in the near term, BofA says

Investing.com - The risk of inflation rising and economic activity stalling in the U.S. is at a "peak" in the wake of President Donald Trump’s latest tariff announcement, according to analysts at BofA.

In a note to clients on Thursday, the analysts led by Claudio Irigoyen argued that this scenario -- dubbed "stagflation" -- is now "much more likely" in the U.S., adding that the world’s largest economy is "close to a tipping point where demand collapses under the weight of higher prices."

They estimated that, should Trump’s sweeping levies stay in place, they would lead to an extra 1 to 1.5 percentage points to inflation in the near term and "subtract a similar amount" from gross domestic product.

The U.S. economy would then be pushed to the "precipice of recession," they said, flagging that this would also likely make it "even harder" for the Federal Reserve to cut interest rates in 2025 but "ease substantially into next year."

Trump announced his broadest slate of tariffs to date on Wednesday, saying he would slap a baseline 10% duty on all foreign imports into the U.S. and impose greater levies on several longstanding trading partners in a bid to respond to perceived unfair trade practices.

China, the European Union, India, and Japan are among a number of countries set to face elevated so-called "discounted reciprocal" tariffs that aim to address foreign charges and other non-trade barriers. The White House considers these nations to be "bad actors" on trade.

At an event at the White House Rose Garden, Trump revealed a fresh 34% tariff on China, stacking on top of a 20% surcharge he already put in place earlier this year. Wedbush Securities analyst Dan Ives warned that tech stocks would likely be under pressure due to these tariffs.

Imports from the EU, another frequent target on Trump’s trade-related ire, face a new 20% tariff, while goods exported from India into the U.S. will have a 26% tariff placed on them. A 24% tariff will imposed on items from Japan as well.

The 10% baseline tariff will go into effect on April 5, while the higher tariffs will begin on April 9.

Trump and White House officials have argued that these moves are necessary to address trade imbalances, bolster government revenue, and reshore lost manufacturing jobs.

However, many economists have warned that the actions will drive up prices and weigh on growth, and businesses have complained that uncertainty around the tariffs has made planning out their operations difficult.