Former Treasury Secretary Larry Summers said on Thursday that President Donald Trump‘s tariffs will cause an “oil crisis-like shock” to the economy, simultaneously spiking prices and unemployment while shrinking productive capacity.
What Happened: Summers told Bloomberg Television that the tariffs should be seen as “a supply shock,” comparable to “an oil-price spike or earthquake or a drought,” with significant economic consequences.
Potential economic losses, according to Summers, may amount to $30 trillion, or significantly more than $300,000 for a household of four people.
The “reciprocal” duties, which go into effect on Apr. 9, are half of what Trump says trading partners charge for American goods. The countries with the biggest duty rises include Sri Lanka (44%), Vietnam (46%), and China (34%).
What Happened: The world’s markets responded quickly to what Trump referred to as “our Declaration of Economic Independence” and “Liberation Day.” Futures for the Dow Jones Industrial Average fell by around 830 points as U.S. futures fell.
The “Magnificent Seven” tech stocks bore the brunt, facing a projected $685 billion combined market value loss. Apple Inc. AAPL led declines, dropping 7.14%.
Summers cited past analysis showing nearly a “dollar-for-dollar” impact on consumer prices from Trump’s first-term tariffs. “The proximate effect will be to boost prices, with effects then rippling out to include less employment and reduced investment,” he said. “This is a classic supply shock that puts the Federal Reserve in a very difficult position.”
Condemning the measure as “typical unilateral bullying,” China threatened to take retaliatory action. The Nikkei 225 in Japan dropped 2.95% on Thursday as Asian markets declined.
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