Illustration: Xia Qing/GT
During Wednesday's press conference, US Federal Reserve (Fed) Chair Jerome Powell's repeated mention of "uncertainty" once again brought the US government's tariff policies into the spotlight on the global economic stage. It seems that the US economy is caught in an unprecedented vortex of uncertainty due to these tariff policies, and this vortex is rapidly expanding outward, sweeping across the globe and triggering strong attention and concern from countries around the world regarding the ongoing trade tensions and the unpredictable landscape that lies ahead.
After the Fed kept interest rates unchanged following the conclusion of the Fed's two-day monetary policy meeting, Powell acknowledged that a "good part" of the central bank's higher inflation expectation comes from tariffs. He highlighted the high level of uncertainty among American consumers and businesses, much of which stems from the US government's tariff policies.
During the one-hour press conference, Powell used the word "uncertainty" 16 times, Yuyuantantian, a media outlet affiliated with China Media Group, reported on Thursday.
This underscores the profound unease within the Fed about the trajectory of the US economy. This uncertainty, rooted in the tariff clouds hanging over the US and its major trading partners, has become a central theme in global economic discussions.
On the one hand, the immediate effects of tariff policies are evident in the rising costs of goods and the increased financial burden on consumers. By imposing tariffs on imports, the US government has effectively raised prices for a wide range of products, from consumer goods to industrial materials. This inflationary pressure not only erodes household purchasing power but also disrupts business operations. Companies reliant on imported materials face higher production costs, which can lead to reduced profitability, delayed investments and even layoffs.
On the other hand, the uncertainty of tariff policies has severely affected the market. The US government's flip-flopping on tariff policies has made market expectations extremely difficult to predict. Given reactions in the stock market, it seems that the harm caused by the uncertainty they generate could be greater than expected. By keeping trading partners and domestic stakeholders guessing, the administration may have gained some bargaining chips on the negotiation table, but at the cost of long-term economic stability. Investors, unable to predict policy directions, have become increasingly cautious, leading to heightened market volatility and reduced capital flows.
The impacts of such policy uncertainty extend far beyond US borders, creating a climate of vulnerability that is felt worldwide. Take Mexico as an example. Mexico's unique geographical location has attracted many multinational companies to invest and set up factories. But now the uncertain US tariffs are disrupting the investment plans of some companies in Mexico. Many planned investment projects have been put on hold, which has undoubtedly seriously hindered the normal development of the Mexican economy, according to media reports.
According to the OECD's latest forecast, the escalating US tariffs will hit world growth and raise inflation. Specifically, the OECD has more than halved its growth outlook for Canada for this year and next, while it expects Mexico to be pushed into a recession, BBC reported.
Perhaps one of the most significant long-term consequences of the US tariff policies is the erosion of trust in international trade agreements. Agreements like NAFTA and USMCA were designed to provide a stable framework for trade, reducing uncertainty and fostering economic cooperation. However, the US government's unilateral imposition of tariffs has undermined the credibility of these agreements.
This erosion of trust is not limited to North America. Around the world, countries are reevaluating their reliance on the US as a stable trading partner. Some are seeking to diversify their trade relationships, turning to regional partnerships and multilateral agreements to reduce their exposure to US policy volatility. Others are investing in domestic industries to build resilience against external shocks.
In conclusion, protectionist trade policies are sowing the seeds of uncertainty. In the long run, they are harming the interests of all economies involved. While the immediate effects of higher prices and disrupted supply chains are concerning, the deeper issue is the erosion of trust in the rules-based international trading system. This decline in trust undermines cooperation and collaboration among nations, which could lead to a more fragmented global economy, making it increasingly difficult to address shared challenges such as climate change, public health crises and economic inequality.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
