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Proposed extreme tariffs by U.S. presidential candidate Donald Trump could disrupt the trend of disinflation and potentially lead to an increase in Interest rates, as stated by Tim Adams, the head of the Institute of International Finance. These tariffs may result in higher Inflation and Interest rates compared to what would be seen without them. Trump has emphasized the implementation of universal tariffs as a key economic strategy, suggesting a 20% tariff on all goods from all countries and a higher 60% rate on imports from China. He has also pledged a 100% tariff on cars coming across the Mexican border and on countries attempting to move away from using the U.S. dollar. In defense of his plan, Trump argues that higher tariffs could incentivize companies to establish factories within the United States to avoid tariff costs.

Despite Trump’s assertions that universal tariffs would not lead to Inflation, analysts have cautioned that the overall package of higher tariffs and immigration restrictions could potentially raise Inflation levels. U.S. Inflation has recently been at 2.4%, down from a peak of 9% in June 2022. The Federal Reserve has responded to economic challenges by lowering Interest rates, with a notable half percentage point reduction in September.

The potential return of a Trump presidency coincides with increasing trade tensions globally. The European Union recently voted to impose higher tariffs on Chinese electric vehicles due to alleged unfair subsidies benefiting Chinese carmakers. Adams noted that both Trump and his Democrat opponent Kamala Harris are positioning themselves as “change candidates” rather than advocates for continuity. While Trump is seen as more isolationist and protectionist, Harris is expected to engage more with the international community and support international organizations.

CNBC has reached out to the Trump campaign for comment.

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