What the World Got Wrong About US Tariffs

No economy rises or falls for just one reason, even a shock as big as Trump's trade policy.

- Ruchir Sharma

At the beginning of the year, the world was in striking agreement on one point: If US President Donald Trump went ahead with tariffs, it would strengthen the US dollar and trigger stagflation. Chief executives, investors and commentators all said the same. Economists estimated that every percentage point increase in the tariff rate would shave 0.1 per cent off US growth and add 0.1 per cent to inflation.

But so far, the consequences have been far less disruptive than just about anyone expected. Some analysts still think that's because Mr. Trump's threats have been mostly posturing. But the effective US tariff rate has already risen from 2.5 per cent to 15 per cent. Tariff revenue is rolling in at an annual rate above US$300 billion (S$385 billion), roughly four times the pace this time in 2024.

Many economists had assumed that, by lowering imports, tariffs would strengthen the dollar almost automatically, as an accounting identity. Instead, it suffered its worst fall over the first half of a year since the early 1970s.