Prof. Dr. Julian Hinz

The 90-day “tariff pause” between the US and China is expected to provide noticeable short-term relief, especially for the US economy. Simulations using the KITE model from the Kiel Institute for the World Economy indicate that inflationary pressure in the US may decrease. Current calculations suggest that prices will rise by around 4.3 percent in the short term, which is 1.2 percentage points lower than under the escalated tariff levels with up to an additional 145 percent tariffs from before.

The current trade war between the US and China is likely to weigh heavily on the US economy in particular. Inflation is likely to rise by over 5 percent and exports are likely to slump by almost 17 percent. The consequences for China itself are also considerable, but much less severe. Germany and the EU are hardly affected negatively. China's Asian neighbors and products such as Christmas decorations, dried fish, and electric blankets will face substantial additional competition on the global market. This is shown by simulations using the KITE model of the Kiel Institute for the World Economy.

The European Central Bank (ECB) is expected to cut its deposit rate by 25 basis points to 2.25 percent today. Lena Dräger, an expert on monetary policy, and trade researcher Julian Hinz see the move as a further step toward monetary easing, but are calling for a stronger signal in view of the economic risks to the real economy and financial markets, particularly those arising from the escalating trade policy of the US.