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Moving targets

2025-05-16

Despite recent signs of de-escalation, trade uncertainty and expected higher prices appear set to take a toll on the U.S. economy.

Moving targets

“The customer is always right” is not just a time-honored mantra for many service providers. When it comes to tariffs, it also applies to U.S. consumers and corporate buyers of capital equipment. Recent surveys suggest sharp falls in business and consumer sentiment, while also revealing big jumps in inflation expectations.^[1]

In our view, they are likely to be proven right. A 2020 study shows that in the case of the first trade war in 2018, tariffs were almost fully passed through to domestic prices, essentially making domestic U.S. consumers pay Uncle Sam for consuming foreign goods.^[2] No wonder, then, that prospects of tariffs as high as 145% for many imports from China were unnerving. Despite recent signs of de-escalation however, the kind of levels in the 14%-15% range we currently expect for average overall U.S. tariffs would still be a bit of a departure from what was normal in recent decades and indeed U.S. history since the civil war. As our Chart of the Week shows, you would still need to look back to the 1930s to find anything similar.

This, together with the prospect of simultaneous tax cuts and deregulatory measures, makes assessing the likely impact – even once policies become clearer – very tricky.^[3] On the one hand, economies and in particular supply chains are very different from the ones a century ago. On the other hand, some very real and often large costs of protectionist measures, such as reduced consumer choice, reduced competition, and, in many instances historically, loss of innovative prowess, are hard to directly track and measure in economic statistics.

Investment Traffic Lights

2025-05-06

The monthly Investment Traffic Lights provide a detailed market analysis and our view on developments in the main asset classes.

U.S. average effective tariff rates still likely to rise to levels not seen in decades

^{Sources: U.S. International Trade Commission, Bloomberg Finance L.P., DWS Investment GmbH as of May 2025}

They just drag countries’ economic performance over time. That said, the U.S. economy of the 19th and early 20th century was also a poster child of how a large, relatively closed economy could succeed in delivering mass-produced, world-beating innovations such as incandescent light bulbs to an extent rarely seen elsewhere in economic history. Thanks to its large domestic market, cultural norms, and institutions geared toward promoting entrepreneurship and competition, the early U.S. economy was able to harness the power of (domestic) competition even while hindering foreign rivals.

“Taken all together, we think that it is important to consider both, the short- and the long-term effects of recent changes in U.S. economic policies, including potential offsetting policy steps,” argues Christian Scherrmann, U.S. economist at DWS. “In the short term, we think that the risk of a (shallow) recession certainly remains. But as for the longer-term impact, it remains far too early to say.”

Recession odds remain elevated

2025-05-13

Uncertainty and higher prices expected to take a toll on the economy.

CIO View

Gain the latest insights on strategic market outlooks and major trends, exploring how interest rate shifts, economic changes and bond markets can create opportunities for investors.

How recessions affect earnings per share

2025-05-09

In addition to the severity of the recession, inflation will be an important factor during this phase.

This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.

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As of 5/13/25; RBA 0037_082244_199

Moving targets

U.S. average effective tariff rates still likely to rise to levels not seen in decades

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Important information – EMEA, APAC & LATAM

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