BIS Sounds Alarm: Trump’s Trade War 2.0 Could Reignite US Inflation Inferno

The bankers' bank just dropped a truth bomb—protectionism burns.

Subheading: When tariffs meet monetary policy

The Bank for International Settlements warned today that former President Trump's proposed trade policies could send US inflation roaring back like a 2021 meme stock. Their latest report suggests aggressive tariffs would disrupt global supply chains—again—while the Fed struggles to maintain its 2% target.

Subheading: Déjà vu for dollar holders

Markets remember how 2018's trade wars forced the Fed to pivot. This time, with rates already elevated, the BIS predicts stagflationary pressures could hit harder. Their models show import price spikes cascading through consumer goods within 90 days of implementation.

Closing thought: Nothing makes central bankers sweat like politicians playing with economic matches—except maybe Bitcoin's next ATH.

The BIS warns that the global economy is vulnerable to disruptions 

Carstens argued that the global economy is at a critical stage and countries are looking at a period of elevated uncertainty. In the BIS report, he warned that economic growth potential is slowing, with threats to price stability, fiscal health, and the broader financial system mounting.

He added that the global economy is especially vulnerable to disruptions with the ongoing climate and geopolitical changes, an increasing aging population and supply chain challenges.

Additionally, the report showed that the post-COVID inflation surge affected people’s perception of price movements, and the high public debt levels do not make the situation any lighter. 

When Trump’s tariffs were first introduced, markets fell sharply and have only partially recovered. The bank’s report showed that investor confidence was severely shaken at the time, and while doubts remain, the pause on tariffs helped ease some of that uncertainty.

So far, the US dollar has dropped 10% in 2025 and could quickly grow to be the most significant H1 drop since the early 1970s, according to Hyun Song Shin, the BIS’s main economic advisor.

Shin maintained that there’s still no sign that investors are moving away from the American currency, as some economists may have hinted. He claimed it’s still too early to determine anything, especially since sovereign funds and central banks MOVE slowly. 

Shin, however, noted that treasuries and other US assets may have contributed to the dollar’s recent depreciation.

The BIS recommended reducing trade barriers and bureaucracy to cultivate growth

The BIS believes that inflation and instability risks are more likely to emerge from, or be amplified by, tensions in sovereign bond markets. It also warned that the increasing doubts in fiscal sustainability may make refinancing debt harder and affect inflation expectations.

It has thus called for more flexible labor policies, reduced bureaucracy and trade barriers, increased public investment, and advocated fiscal repair to promote growth and productivity.

Officials, however, cautioned against easing bank regulatory laws and even urged for more supervision of non-bank financial institutions.

They also asked central banks to tread carefully when weighing growth against inflation, as market participants remain highly reactive to price shifts. The Deputy General Manager, Andrea Maechler, even argued that a price surge today is no longer seen as a temporary blip but a potential sign of inflation. 

The bank’s officials also advised central banks to stick to their primary mandates to ensure client trust and the effectiveness of their actions, and warned of the growing attention to stablecoins.

Aside from that, Carstens cautioned that the US Federal Reserve may face turbulence, especially with Chair Jerome Powell opposing reduced interest rates that the WHITE House insists on.

He believes the central bank could see “higher inflationary pressures or deviating inflationary expectations and a slowdown in the economy.” 

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