In this note we examine the macroeconomic implications of a major shift in US trade policy, marked by a sharp increase in tariff rates and heightened economic policy uncertainty. We first quantify the expected scale of the tariff shock, forecast to reach 14%, based on announced measures and plausible assumptions around implementation. Using a structural Bayesian VAR model, we estimate that the combined effect of tariffs and uncertainty will reduce US GDP growth by approximately -1.9 percentage points and raise core PCE inflation by up to +0.4 percentage points by end-2025. Spillovers to the euro area are more muted, with growth reduced by around -1.2pp and inflation falling substantially below target. These results are consistent with a negative “supply-side shock” in the US and a “demand-side shock” in Europe. Cross-validation with external model estimates supports the robustness of our findings. Given ongoing legal and geopolitical uncertainties, we stress the importance of closely monitoring near-term data to gauge the evolving impact on inflation, growth, and policy trade-offs.
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