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Investing.com - U.S. President Donald Trump’s tariffs could weigh on American economic activity and place upward pressure on inflation, according to analysts at Evercore ISI.
Over the weekend, Trump slapped 25% import tariffs on traditional trading partners Canada and Mexico, with Canadian energy products facing a 10% levy. A tariff of 10% was also placed on goods incoming from China.
In a note to clients, the Evercore ISI analysts suggested that the levies have the potential to cause a 0.4% or greater drag on U.S. gross domestic product, as well as 0.4% or more uptick in price gains.
The comments echo recent worries from economists that the tariffs could cause a period of faster inflation and tepid growth, or "stagflation", in the U.S. Trump has said the measures may lead to some "pain" in the short-term for Americans, but argued it "will all be worth the price that must be paid".
The tariffs, which are due to come into effect on Tuesday, also stand to spark an escalating trade war, analysts have warned. Canada and Mexico have announced plans to roll out their own tariffs on U.S. goods, while China’s Ministry of Commerce intends to challenge the actions at the World Trade Organization.
Trump officials have not said what exact improvements would need to be seen in stemming the flow of illegal immigrants or the opiate fentanyl into the U.S. in order to remove the tariffs. Trump used these as legal justification for employing economic emergency powers to introduce the levies.
Meanwhile, Trump has said that separate tariffs on the European Union would "definitely happen", although he did not specify when they would be implemented.
However, despite Trump’s remark last week that he was not concerned about a possible roiling in global financial markets because of the tariffs, a fall in the benchmark S&P 500 to levels prevailing around November’s election or a climb in 10-year U.S. Treasury yields could prompt him to "turn more toward dealmaking and off-ramping" the levies, the Evercore ISI analysts predicted.
U.S. stock futures slid on Monday, while equity markets around the world also fell.