We are witnessing a transformation in international trade, geopolitics and technology. The expression “change of regime” has been very frequent in recent days. The predominant belief is that we are facing a break in productive and political relations that will reconfigure the global economy in the coming years.
The absence of clarity has never been so high. The Uncertainty Index of Economic Policy in the US, measured by Baker, Bloom & Davis, has reached its highest point since 1985, surpassing the previous record of. This scenario of unpredictability contaminated the world, raising the global rate of uncertainty of economic policy back to the peak observed in the health crisis.
Annually, in the northern hemisphere, the Washington (US) to discuss the global economy and its regional impacts. At the same time, meetings with public managers, such as Finance Ministers, Treasury secretaries and central bank directors, occur. This year, the change in management in the US, with the tariff policy of the government, was the central theme.
O is unprecedented: 10% overall; 25% in some sectors; and “individualized” reciprocal tariff measures, high due to the size of the US commercial deficit with other countries. China, with retaliation, faces rates greater than 100%. Average tariffs would come from about 2.5%at the end of last year to more than 20%.
Most bet on a US scenario of stagflation, when there is low growth with high inflation due to the shock of supply caused by increased tariffs; And a more pronounced slowdown in China, which faces a shock of demand.
According to the president of the Federal Reserve (Fed, the US), the rate of tariffs is something never seen in modern history, which leads to interpret that the Fed sails in unknown waters. With high import rates and high uncertainty, the risk is weak growth, high unemployment and accelerated inflation. Recently, there was a detachment between inflation expectations, growing, and growth projections, which indicate slowdown. If the slowdown is sudden, the Fed will prioritize its mandate in relation to growth and may reduce interest rates in the second half. In addition, analysts expect a more cautious and reactive monetary policy, which could change the US inflation level.
In Brazil, the members of the have been cautious. What will be the impact of tariffs? Will there be a soft recession or slowdown? Will supply shock affect inflation?
The Brazilian Central Bank is committed to the 3%inflation target, albeit in a longer horizon. It is possible to expect a “timely misinflation” if global slowdown, especially in China, to open idle capacity in the Brazilian economy, helping to control inflation here.
However, expansionist tax and parafiscal measures announced by the government challenge the Central Bank. With expectations of unannked and growing inflation for next year, we believe there will be another rise from Selic next week, before the break in June. If the global and local slowdown is confirmed, the interest cutting cycle in Brazil could start later this year, more slowly, considering two cuts in the US in the second half.
However, central banks cannot solve everything. It is an environment in which institutions built since the post-World War they become more fragile.
If you gain softer contours, with bilateral commerce agreements with India, Japan, China, European Union and Canada and Mexico (USMCA), global tariffs may be higher than the previous but lower standard than those advertised on Trump by April 2, 2025, when he announced the new tariff taxes. This would reduce disruptive impacts on markets and the real economy. Otherwise, global economic policies will need to be repositioned rapidly due to a possible strong renapation of capital flow between the planet’s regions.
There is a breach of confidence that will lead countries and regions to seek greater autonomy in energy, rare land, technology (semiconductors), military defense and even in sanitary themes such as medicines and hospital equipment. This search for autonomy tends to be associated with geopolitical conflicts.
The ruptures in the productive chains during the pandemic left a bitter taste. Subsidies to strategic sectors and tariffs will reconfigure global productive chains. Europe has already changed its approach, reinforced by. China will harden its commercial and military stance and seek to redo its alliances, including the Middle East.
Central banks will have to deal with topics never dealt with in economics manuals. The breaking of regime so commented implies that economic incentives will no longer dictate trade relations between nations, but the strategy of mastery of productive chains and strategic technologies. Anticipating the possible impacts of generative artificial intelligence on global productivity is still a challenge.
In such uncertain times, the best reaction to monetary policy goes through a transparent reaction strategy to inflationary risk, gradualism and moderation.
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