“Blah, blah, blah.”
That’s what Donald Trump heard when he read the latest annual report from the BIS, published on Sunday.
I’m just joking. Trump doesn’t read. Unless it’s a NY Post headline.
If he did read, and someone passed him the BIS report, he’d learn that his trade war, and particularly the “Liberation Day” tariffs, “marked a watershed moment for the global economy, with the potential to weaken demand, disrupt global supply chains and destabilize the global trading system.”
So, yeah: “Blah, blah, blah.” Now that I think about it, I’m not even sure Trump would consider that criticism. I suppose he doesn’t want to “weaken demand,” as such, but he certainly isn’t opposed to “destabilizing” trade flows. Indeed, shaking up global trade and commerce is part and parcel of his agenda.
The figure below uses familiar news-based policy uncertainty gauges to give you a sense how far astray we are vis-à-vis “normal” levels.
The point, obviously, is that while off the post-2020 peaks in the US, Europe and China, uncertainty’s running dramatically higher versus the pre-pandemic average across locales. And it’s up sharply since last summer.
The first chapter of the BIS report is an indictment of tariffs along all the usual lines, which is to say it spells out, in painstaking detail, what everyone already knows about tariffs: They’re more trouble than they’re worth and the unintended consequences far outweigh any benefits.
Even if you assume, as the likes of Chris Waller do, that most tariff-related inflation will be a short-lived, one-off price level event, that hardly exonerates protectionism as a strategy. “The effects of uncertainty alone could have a major impact on the near-term economic outlook,” the BIS fretted. “Heightened uncertainty may lead firms to adopt a more cautious approach to investment and hiring [and] consumers may choose to postpone durable goods purchases and increase savings as a precautionary measure.”
Given that, the read-through for growth “and particularly business investment,” to quote the report again, is poor, or anyway poorer than it would’ve been in the absence of Trump’s mercantilist machismo.
Globally, central banks are grappling with the uncertainty in part by cutting rates. Indeed, as the figure below shows, 2025’s on pace to be one of the most aggressive years ever for global rate cuts.
So far, the Fed hasn’t cut, much to Trump’s chagrin. But expect Jerome Powell to begrudgingly “join the party,” as BofA’s Michael Hartnett put it, “to arrest [the] slowdown in US growth.”
The risk, of course, is that tariff-related inflation isn’t a one-off — that it isn’t confined to goods, and that it becomes self-fulfilling through the expectations channel as households still suffering from PTSD associated with the pandemic/war inflation expect the worst and adjust their behavior and wage demands accordingly.
“In the US, you could face a very difficult scenario for the central bank,” BIS General Manager Agustin Carstens said Sunday. Powell, he went on, could “have higher inflationary pressures or [volatile] inflation expectations and a slowdown in the economy.”
The BIS had a subtle suggestion for Trump. “Broad-based import tariffs risk lowering overall living standards and reducing employment, even in sectors competing with imports,” the bank said. “If the objective is to reduce trade imbalances, a more effective approach involves the adoption of appropriate fiscal and structural policies, including [those] that help displaced workers find jobs in other sectors.”
With that kind of defeatist attitude, we’ll never get American men back into dangerous steel mills and coal mines, nor women back at the sewing tables.
