Bank for International Settlements bulletin estimates tariff hikes and trade policy uncertainty could weigh on global growth and complicate inflation dynamics

The Bank for International Settlements published a BIS Bulletin assessing the macroeconomic effects of tariffs and trade policy uncertainty. It concludes that tariffs tend to lower output growth across countries while raising inflation most notably in the economies imposing the tariffs, and that indirect channels and persistent uncertainty can amplify these effects and complicate central banks’ policy trade-offs. Trade-model estimates referenced in the bulletin project the United States as the most affected economy, with near- to medium-term GDP growth around 1 percentage point lower, while impacts on the euro area and China are generally smaller but model-dependent; in high-tariff scenarios involving retaliation, Canada and Mexico face the strongest stagflationary effects after the United States. Beyond the direct trade channel, the analysis highlights exchange rate shifts, potential supply chain disruptions from tariffs on intermediate inputs and higher working-capital needs, and trade diversion dynamics including rising Chinese exports to the European Union and ASEAN alongside sharply weaker exports to the United States. Elevated trade policy uncertainty is also flagged as a potential drag on domestic demand by delaying investment and durable consumption, with evidence linking uncertainty to sizeable output losses and a downward shift in projected growth outcomes by up to two percentage points in the left tail; the bulletin adds that currently accommodative financial conditions and firms’ expanded credit lines may not persist, particularly given limited liquidity buffers among tradable-sector firms.