In today's global economic landscape, all eyes are fixed on the incoming Trump administration and its potential implications. One crucial aspect that is likely to take center stage in the coming weeks is the reemergence of tariffs and their broader impact on trade and the economy. Matthew Luzzetti, chief US economist at Deutsche Bank, shares his insights on this matter in his Opening Bid podcast.

Unraveling the Tariff Conundrum and Its Economic Ramifications

Section 1: Tariffs in the First Trump Administration

During the first Trump administration, tariffs played a significant role. Trump imposed more than $300 billion in duties on Chinese goods. President Joe Biden largely re-upped Trump's policy in May and added new tariffs on certain sectors. This move was aimed at being fair, as Biden exclusively told Brian Sozzi at the time.These tariffs had a notable impact. They focused heavily on materials like steel and aluminum along with China. The economy experienced some changes during this period. Inflation saw an uplift, and the manufacturing sector faced both challenges and opportunities. Industrial production, which had picked up in 2018, saw a decline in 2019. This clearly shows that tariffs do have an effect on the economy in the short term, acting as a negative supply shock.

Section 2: Tariffs and the New Administration

Looking ahead to the new administration, there is a proposed move to impose a baseline tariff of 10% to 20% on all imports. This is with the aim of bolstering US manufacturing. Trump has also floated stiffer tariffs on China and new ones on Mexico. The jury is still out on the long-term effects of these tariffs.From 2019, we know the short-run effects. It improved the trade balance with China but did not necessarily improve the trade balance more broadly. The great economic unknown remains, as echoed by top leaders like Bank of America (BAC) CEO Brian Moynihan at this week's Yahoo Finance Invest conference.

Section 3: Insights from the Data

Luzzetti views the data from Trump's first term as useful in forecasting what could happen this time around. The tariffs of 2019 had a significant impact on various sectors. China experienced a devaluation in its currency, leading to global market sell-offs. Financial markets took the tariffs very negatively.However, despite the challenges, there were some positive aspects. The manufacturing sector showed resilience. Industrial production picked up in 2018 despite the tariffs, indicating its ability to adapt. This data provides valuable insights into how the economy responds to tariffs and helps in understanding the complex dynamics at play.