The latest U.S. pullback on tariffs will ease but not fully alleviate protectionist pressure on the global economy, suggests a new report from National Bank Financial Inc. (NBF).
Last week, the U.S. and U.K. announced a deal to reduce tariffs but not fully eliminate them. On Monday, The U.S. and China announced a rollback on tariffs for 90 days as they negotiate a broader deal.
These and other recent trade war retreats will reduce the pressure on the global economy, the report says, as the average effective tariff rate for the U.S. will drop to just under 15% due to these deals, down from a peak of around 30% earlier this year.
“Lower tariffs are not to be confused with low tariffs, however,” it said, adding that even if it strikes more bilateral agreements in the weeks ahead, the U.S. “will retain a material degree of protectionism.”
This remains negative for economic growth and inflation, it noted.
“Upside inflation and downside growth risks may have moderated, but prevailing tariffs are still consistent with a material disruption to the economy,” it said.
As a result, these latest developments will likely do little to change the U.S. Federal Reserve Board’s current stance on monetary policy, NBF said.
“Whether the inflation or growth channel is more affected remains uncertain, which will keep the Fed standing pat until greater clarity emerges,” it said.
Markets had been expecting the Fed to start easing later this year, as growth worries outweigh inflation concerns, the report noted.
“We still expect tariffs and ongoing uncertainty to take a toll, and we’d lean against stripping out cuts any further… even if expectations for inflation aren’t exactly where the Fed would like,” it said.