Former President Donald Trump’s proposed tariffs would likely lead to substantial inflationary pressures and economic consequences if implemented broadly, Nomura pointed out in a note published on Monday.
The firm warned that a broad-based tariff approach, such as Trump’s proposed 10% across-the-board tariffs, would be markedly more inflationary compared to the targeted tariffs seen during his first term.
Nomura noted that Trump’s previous tariffs, which were more narrowly focused, had a relatively benign impact on inflation. However, the firm argued that across-the-board tariffs would likely lead to a significant increase in core inflation, potentially by as much as 1 percentage point, partly because such tariffs would affect a wide range of goods without the possibility for offsets from unaffected countries.
“In contrast to targeted tariffs, which had a minimal impact on retail prices due to margin adjustments and increased imports from exempted countries, broad-based tariffs are expected to push up prices more substantially,” said Nomura.
The analysis drew on the example of Trump’s 2018 tariffs on washing machines, which led to noticeable increases in both consumer prices and producer prices for domestic manufacturers.
Nomura’s projections suggested that domestic distributors might absorb a significant portion of cost increases from the proposed tariffs, but they would likely have less capacity to do so under broad-based tariffs. “We estimate that the proposed 10% across-the-board tariffs could increase prices for domestically produced goods by up to 10%,” the firm noted, indicating a possible rise in core inflation by 100 basis points.
The firm also discussed the potential economic impact of Trump’s trade policies, emphasizing that broad tariffs would result in substantial tax increases and could negatively affect economic growth. “Higher tariffs could act as a tax on domestic residents, as affected exporters might not lower their pre-tariff selling prices,” said Nomura.
Looking ahead, Nomura anticipated that a second Trump administration might resume its aggressive trade stance, with Trump proposing not only a 10% across-the-board tariff but also a 60% tariff on Chinese goods.
“If Trump is reelected, we expect his combative trade policies to continue, although we anticipate some exemptions for key trading partners and negotiated bilateral agreements,” Nomura said.