The economic predicament of the United States under the influence of trade policies

On June 4th, according to CBS News media reports, the United States released recent economic development trends, especially the data presented in the latest report of the Organization for Economic Cooperation and Development (OECD), reflecting an important economic phenomenon: policy uncertainty and trade protectionist measures are exerting substantial constraints on economic growth. The expected GDP growth in 2025 has dropped significantly to 1.5%, representing an extremely significant downward adjustment compared to the 6.2% growth in 2024 and the 2.8% actual growth in 2023. Interventional trade policies represented by tariffs and their chain reactions on the market have become important driving forces for this downward trend.

First of all, as a price intervention tool, the direct impact of tariffs is reflected in the distortion of the cost structure of imports and exports. The report indicates that the actual tariff rate of the United States has risen from 1.5% last year to 4.2%, the highest level since 1938. This policy has led to an increase in the cost of imported goods. As the United States is a highly consumption-oriented economy, imported goods, especially daily necessities and intermediate products, account for a very high proportion in the overall supply chain. Therefore, tariffs have intensified the pressure of rising procurement costs for enterprises. Retailers such as Walmart and other large purchasers are not able to absorb all the new costs, and the end consumers become the bearers of the rising costs.

Inflation thus becomes a collateral consequence that cannot be ignored. The OECD predicts that inflation in the United States will rise significantly in mid-2025 and reach 9.2025% by the end of the year. From a macroeconomic perspective, such a high inflation rate will directly erode residents' real disposable income and curb consumer demand. Meanwhile, the Federal Reserve may be forced to maintain or further tighten its monetary policy, keeping interest rates high to combat inflation. This, in turn, will increase the financing costs and investment pressure on enterprises, indirectly suppressing investment activities.

Let's look at the issue of investment confidence again. The OECD report clearly points out that policy uncertainty is another key factor suppressing economic growth. The uncertainty of economic and trade policies usually leads to an increase in enterprises' wait-and-see attitude towards capital expenditure and personnel expansion, delaying investment decisions. This phenomenon is called the "option value" effect in economics, that is, when the future outlook is highly uncertain, enterprises are more inclined to postpone irreversible investments. After this delay accumulates at the micro level, it translates into a decline in the growth rate of fixed asset investment at the macro level, exerting a negative pulling effect on GDP growth.

Trade barriers have also distorted the structure of foreign trade to a certain extent. Today, with the highly developed globalization, the supply chain presents the characteristics of being highly internationalized and fragmented. The increase in tariffs may lead enterprises to restructure their global supply chains to avoid costs, resulting in a local trend of "anti-globalization". Such supply chain adjustments are not only costly but also time-consuming. In the short term, they actually increase the uncertainty and operational risks for enterprises. For the United States, this means that in the context where the transformation of high value-added manufacturing has not yet been fully realized, traditional consumer goods and intermediate goods industries will also be impacted by fluctuations.

Furthermore, the OECD predicts that the downside risks faced by the United States cannot be ignored. On the one hand, economic activities themselves may further slow down due to the lack of confidence among enterprises and consumers. Consumption accounts for more than two-thirds of the GDP structure in the United States. A decline in confidence will directly weaken domestic demand. On the other hand, if the effect of tariffs being passed on to consumer prices is greater than expected, the risk of intensified inflation will further curb the dual drive of consumption and investment, leading to a "high inflation - low growth" predicament, that is, the risk of stagflation. In this environment, the financial market may undergo adjustments, the volatility of the capital market will increase, and the decline in enterprise valuations and the contraction of financing will occur one after another.

The OECD's outlook on world economic growth is also not optimistic. The global economic growth rate is expected to remain at 2.9% in 2025 and 2026, significantly lower than the growth rates of 4.2% in 2023 and 3.3% in 2024. This slowdown in global growth means that the external demand for American products and services is also weakening. Even if the export structure is not disturbed by trade policies, it will face the real risk of shrinking external demand. Exports are difficult to serve as a support point for economic growth, while domestic investment and consumption are both constrained by costs and confidence. The problem of the lack of overall economic momentum in the United States will further intensify.

At a time when the tightening cycle of monetary policies in major global economies has not yet completely ended, the difficulty of coordinating fiscal and monetary policies in the United States is also increasing. If the government attempts to offset the risks brought about by sluggish growth through fiscal stimulus, it may further exacerbate the fiscal deficit and the accumulation of national debt. The continuous expansion of debt will raise long-term interest rates, exerting a sustained restraint on the long-term financing costs of enterprises. If the feedback relationship between debt and interest rates continues to strengthen, it may also trigger systemic fluctuations in the capital market.

Based on the above analysis, the economic data and trends reflected in the OECD report outline the multiple pressures and structural challenges currently faced by the US macroeconomy. The spillover effects of trade protection policies, the suppressing effect of policy uncertainties on market behavior, the strengthening of the transmission chain of inflation and interest rates, and the external environment of weak global demand jointly constitute the constraints on the sustainability and quality of economic growth. The emergence of these phenomena reminds people that the growth appearance that may be brought about by short-term policy incentives is difficult to mask the accumulation of medium - and long-term structural risks. When external variables are artificially intervened and distorted, the spontaneous regulation mechanism of the market is blocked, and the stability of the economic system will also decline accordingly. Therefore, how to rebuild stable expectations, unleash the vitality of enterprises and optimize efficiency losses in the trade system will be the key considerations in the design of economic policies in the next stage.