"New Federal Reserve Communication Agency": Trump's tariffs are a high-risk gamble, which may bring high costs to the financial markets.

On Thursday, Nick Timiraos, known as the "New American Federation News Agency," wrote that the United States is trying to overturn the global trade order it has built with its own hands, ushering in an era of uncertainty. The article suggests that if these tariff policies are implemented in the long term, their impact could be comparable to President Nixon's decision in 1971 to abandon the gold standard, which ended the post-World War II financial structure established by the United States and its allies. This move has also raised concerns in the market - these tariffs may trigger a typical "stagflationary shock," where prices rise and economies, including the United States, face the risk of recession. The severity of tariffs is rarely seen in a century. On Wednesday, according to Xinhua News Agency, President Trump officially announced a set of new trade tariff policies in the White House Rose Garden, including imposing a 20% tariff on EU goods and a general import tax of at least 10% on all countries. According to JPMorgan Chase's calculations, this will raise the average tariff level in the United States from 10% to 23%, setting a new high of over a century, compared to last year's 2.5%. Economists believe that if these tariff policies are implemented in the long term, their impact could be comparable to President Nixon's decision in 1971 to abandon the gold standard. "70"Michael Gapen, chief US economist at Morgan Stanley, said. He added that they have been warning clients that the market may be underestimating the risks of tariffs, but the content announced on Wednesday was broader and more aggressive than they had anticipated. Douglas Irwin, a trade economist and historian at Dartmouth College, pointed out that this wave of tariffs is particularly aggressive, as even traditionally duty-free goods in the US, such as coffee, tea, and bananas, are now included in the tariff list. Compared to the 2019 Trump trade war, this round of tariffs covers a wider range of goods and is more severe. For example, half of Nike's shoes are produced in Vietnam, and Vietnam will now face a 46% tariff. Consumer electronics manufacturers from South Korea will also face at least a 25% tariff. However, this round of tariffs exempts oil, natural gas, and refined products for the time being. Who will pay for the tariffs? Nick Timiraos wrote that President Trump's erratic and chaotic trade policies, including a 25% tariff on automobile imports, have already had a negative impact on business investment and consumer confidence. Steven Blitz, chief US economist at GlobalData TS Lombard, said, "This is a large-scale tax increase, although it is mainly on the business side, like all corporate taxes, it will eventually be passed on to consumers. In a taxed environment, the economy cannot grow." Diane Swonk, chief economist at KPMG, said that the latest announced tariffs may seriously shrink the real incomes of Americans, pushing the US economy into a recession risk zone this year. She pointed out that in various market expectations before the announcement, this set of tariff measures is almost the worst-case scenario. In addition, it is still unclear how other trading partners will respond, which means that the uncertainty in the global trade environment may persist for a long time. Swonk said, "If the goal of these tariffs is to bring businesses back to the US, it may be difficult to achieve. Because it usually takes three to five years from the planning of a project to the construction of a factory, and no one can be sure whether these tariffs will still be effective by then." Will the global capital flow mechanism be disrupted? Although tariff measures can bring new fiscal revenue to the government, there are also costs, such as a severe impact on financial markets. In the past two years, the continuous rise in US asset prices was due to investors' expectations that the US economy was better than other developed countries, including technological progress and confidence in a soft landing. President Trump inherited a stable US economic growth and falling inflation, but there are multiple fragile factors within, such as a stagnant real estate market, a cooling labor market, and overvalued stock market, posing potential risks. Trump has long viewed trade deficits as a sign of economic weakness, but in the process of the Trump administration's efforts to reduce the deficit, other countries may reduce their purchases of US Treasury bonds and be less willing to invest funds in the US housing market, stock market, and private credit markets. Economist Blitz pointed out, "The real pain point in this matter is that the long-standing global capital flow mechanism may be broken. Hoping to sever trade ties without affecting capital inflows is a fantasy." Will the US face uncontrollable inflation? UBS predicts that if tariffs persist, the core PCE inflation favored by the Fed will rise from 2.5% in February to 4.4% by the end of the year, and the US economy may fall into negative growth in the first half of next year, reaching the technical standards of a recession, and the unemployment rate may rise from 4.1% in February to around 5.5% next year, known as stagflation, where the economy slows down and prices rise. In the face of high inflation combined with low growth pressure, the Fed will face a dilemma - prioritize stable employment and loosen policies? Or prioritize combating inflation and tighten policies? This is the classic dilemma for the Fed when facing "negative supply shocks." For example, if oil prices soar, this shock will decrease economic output. Some commodity prices will skyrocket, American real incomes will shrink, and ultimately drag down overall economic growth. While standard monetary policy theory suggests that if such shocks only temporarily and once push up prices, Fed officials should see through these shocks and not change the originally planned interest rate hike or cut because of such short-term disruptions. However, theory is theory, and the practical operation is far from simple. If the global supply chain is reshaped due to tariffs, and this process will last for several years, Fed officials will have a hard time seeing the price hikes caused by tariffs as temporary. " english:"The final result is that the Federal Reserve may initially adopt a wait-and-see attitude in the short term, without rushing to lower interest rates, until they see a substantial slowdown in economic activity and an increase in unemployment rate, before they start using interest rate cuts to cushion the decline in demand. UBS economists said they expect the Federal Reserve to initially cautiously lower interest rates gradually, as cutting interest rates now may worsen inflation. However, once the unemployment rate rises and economic growth significantly weakens, the Federal Reserve will accelerate the pace of interest rate cuts, and by the end of next year, short-term interest rates will fall by more than two percentage points.