According to Odaily, Boston College economics professor Brian Bethune has warned that U.S. President Donald Trump's latest tariff policies could be the most significant economic shock since the 1930 Smoot-Hawley Tariff Act. Economists widely believe that the Smoot-Hawley tariffs worsened the Great Depression by encouraging retaliatory trade barriers, leading to a collapse in global trade and economic stagnation.
Global Trade Tensions Escalate
In response to Trump's tariff policies, Canada has announced retaliatory tariffs, and Mexico is expected to introduce countermeasures on Sunday. The growing trade conflict is likely to disrupt supply chains and create operational challenges for U.S. manufacturers with global footprints.
Potential for Stagflation
Bethune warns that the tariffs will suppress economic growth while increasing inflation, leading to a stagflation effect—similar to the economic struggles of the 1970s and 1980s. Stagflation occurs when an economy experiences high inflation and stagnant growth simultaneously, making it difficult to address through conventional monetary policy.
Federal Reserve’s Role in Mitigating Risks
Given the potential economic slowdown, Bethune suggests that the Federal Reserve should consider interest rate cuts to prevent further economic deterioration. However, the challenge remains whether the central bank can balance inflationary pressures while supporting economic activity amid escalating trade tensions.
As trade conflicts intensify, investors and policymakers are closely watching how these policies will impact economic stability and financial markets in the coming months.
