The head of the Institute of International Finance said that excessive tariffs proposed by US presidential candidate Donald Trump would interrupt the path of declining inflation and could lead to higher interest rates.
“The assumption is that you will have higher inflation, higher interest rates than you would have had in the absence of those tariffs,” Tim Adams, president and CEO of the Institute of International Finance's Financial Services Industry Trade Group, told CNBC's Karen Tso on Tuesday.
“You can argue about whether it's a one-off or whether it happens over time? It really depends on what the retaliation looks like, and is it repeated over time. But there's no question that it would be a stall in the progress we're making in lowering prices.”, Adams said.
Trump has made global tariffs a central part of his economic rhetoric to voters, with proposals to impose a 20% tariff on all goods from all countries and a 60% higher rate on Chinese imports. He also pledged to impose a 100% tariff on every car coming across the Mexican border, and to impose a 100% tariff on any country that works to “abandon the US dollar.”
In defense of the plan, Trump told Bloomberg Editor-in-Chief John Micklethwait in an interview earlier this month: “The higher the tariff, the more likely a company is to come into the United States and build a factory in the United States. So they don't have to pay the tariff.” “
Trump previously described global tariffs as drawing a “ring around the country” and denied that they were inflationary.
However, analysts warned that Trump's comprehensive package, including higher tariffs and restrictions on immigration, would put upward pressure on inflation, even if some of the impact could be absorbed in the near term.
U.S. inflation was 2.4% in September, down from its peak of 9% in June 2022, as the world faces the effects of pandemic supply chain disruptions and massive fiscal stimulus. The Fed kicked off its interest rate cuts in September with an aggressive half-percentage-point cut, despite concerns about the ongoing path of lower inflation.
The potential return of a Trump presidency to the United States comes at a time of increasing trade dislocation around the world. The European Union voted earlier this month in favor of imposing higher tariffs on battery electric cars made in China, claiming that carmakers there benefit “significantly from unfair subsidies.”
Adams of the Institute of International Finance told CNBC that both Trump and his Democratic challenger, Kamala Harris, are running as “candidates of change” rather than pledging continuity.
“The concern about Trump is that he's anti-internationalist, he's not interested in transatlantic relations, and he's going to focus more on isolationism and protectionism. Some of it may be a little exaggerated, but there are certainly elements of that,” Adams said.
“There is no doubt that Vice President Harris will be more engaged with the global community, and more interested in international organizations.”
CNBC has contacted the Trump campaign for comment.
— CNBC's Rebecca Picciotto contributed to this story.
