QNB: Rising Tariffs Strong Headwind to US Economic Growth

QNB said that rising tariffs would pose a significant headwind to US economic growth, as higher prices reduce household spending while uncertainty and mounting costs negatively impact production and investment.

In its weekly report, the bank noted that since the end of World War II, advanced economies have embraced trade liberalization and economic integration as cornerstones of prosperity and global peace.

It said that over this period, global tariffs were gradually reduced and trade barriers dismantled, thanks to the rules and mechanisms of the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). 

These developments boosted international trade by incorporating former communist economies into global markets, promoting multilateral agreements, and opening up China's economy.

According to the report, these advances drove trade flows to record levels, with the sum of exports of all countries peaking in 2008 at 24% of world GDP.

 However, this rapid expansion came to an abrupt halt with the global financial crisis, which triggered recessions in major economies and sharply reduced demand for goods. Trade growth rates then became volatile in the following years amid rising protectionism and geopolitical polarization.

The report pointed out that in early April of this year, on what became known as "Liberation Day", US President Donald Trump unveiled a sweeping package of tariffs on most countries worldwide. This unprecedented decision marked a turning point, placing the U.S. at the center of a major global trade shock and ushering in a phase of heightened uncertainty for the world economy.

In an attempt to contain escalation, countries rushed to present comprehensive offers to ease Trump's trade measures. Negotiations went beyond tariffs to include investment commitments in North America and direct purchases of US goods, ranging from agricultural products to energy exports. 

The first rounds of negotiations helped ease uncertainty and prevent worst-case scenarios, as deals were reached with the UK, Japan, Indonesia, Vietnam, the Philippines, and the EU, mitigating potential impacts on other countries in what QNB described as a new world characterized by higher tariffs.

The report said that the effective tariff rate (ETR) is an important measure of the burden imposed on a country's imports, reflecting the average tariff compared with the value of imported goods. Current estimates place the US ETR at 18.2%, its highest since peaking at 19.8% in 1933 during a period of strict protectionism.

QNB argued that this level of tariffs, along with likely retaliatory measures from other countries, represents a strong drag on US economic growth. The main effects are rising costs for households and businesses. 

Although not all tariff costs are passed directly to consumers, since importers and foreign producers absorb part of the burden through lower profit margins, the final impact on prices is still significant, estimated at between 0.4 and 2 percentage points of additional inflation. 

Even under optimistic scenarios, such increases weigh heavily on households, reducing purchasing power and curbing consumption and growth.

On the production side, higher tariffs increase input costs and disrupt supply chains, weakening competitiveness and discouraging investment. Political uncertainty and higher costs from tariffs further deter capital spending, particularly in manufacturing.

As a result, US growth forecasts for this year have fallen sharply. Consensus projections have dropped to 1.5% from 2.2% before Liberation Day, a clear sign of the negative economic impact of the new tariffs.

The report also noted that tariffs act as a form of tax on imports and generate revenue for the federal government, thereby helping reduce the fiscal deficit. Optimistic estimates suggest the tariffs imposed so far could generate up to $2.3 trillion in revenue between 2026 and 2035.

However, QNB cautioned that while this may boost government resources, the broader negative effects on the economy could shrink other sources of fiscal revenue. Moreover, the continuation of these tariffs beyond President Trump's current term remains uncertain.

In conclusion, the report stressed that higher tariffs represent a powerful drag on US growth prospects, as they drive up prices, reduce household spending, and increase uncertainty and costs for production and investment.