Underestimated danger: BNP Paribas warns investors about Trump’s tariff plans

• BNP Paribas takes Trump at his word on tariff plans
• Deviation from current market opinion
• Higher US inflation and fewer Fed rate cuts as a result

Market participants don’t seem to be taking Trump’s tariff threats too seriously, but BNP Paribas believes they should. The Paris-based major bank expects the US President-elect to “implement most, if not all, of his campaign promises on foreign, economic and trade policies, including those that could harm the US economy, such as import tariffs.” , MarketWatch quotes from a BNP report on the global outlook for 2025.

It should be noted that “our analysis in this respect differs from what we see as the implicit market assumptions underlying current pricing,” it said, referring to the recent record rally on the stock markets.

Trump relies on protectionism

Trump is pursuing a markedly protectionist agenda that relies on higher import tariffs and greater restrictions on international trade. In this context, he is threatening, for example, basic tariffs of 20 percent on US imports from the EU and even 60 percent on imports from China. Companies usually pass these additional costs on to consumers, making their lives more expensive. But it seems that many market participants are hoping that Trump’s tough words on tariffs will turn out to be just a negotiating tactic.

Immigration should be limited

But BNP Paribas warns that if Trump’s words are taken at face value, the U.S. economy could stall by 2026 because his customs and immigration policies outweigh his pro-growth initiatives.

It is important to know that Trump’s planned deportation and restrictive immigration policies are likely to lead to a significant decline in the workforce – especially in the low-wage sector and in agriculture. The consequences would be higher wage costs, which in turn would likely be passed on to consumers. Immigration not only brings with it workers, but also innovation and entrepreneurship. Fewer immigrants could therefore have a long-term impact on economic growth and productivity in the USA.

Higher interest rates

In view of Trump’s plans, BNP Paribas expects “a lasting shock to consumer prices in the USA [etwa 2 Prozentpunkte] and a temporary impact on inflation in the USA – albeit during our two-year forecast horizon.” As a result, the US Federal Reserve will then have to keep interest rates higher: “However, we do not expect inflation expectations to be unanchored. In other words, we expect the Federal Reserve to keep long-term inflation expectations in check by maintaining restrictive policy for longer than would otherwise be the case,” the report continued.

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