Peter Schiff Warns Only Major Dollar Decline Or High Tariffs Can Cut US Trade Deficit — But Inflation And Rates Will Soar - Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 (ARCA:SPY)

Renowned economist Peter Schiff has issued a stark warning about the U.S. trade deficit, asserting that without the implementation of high tariffs, the only path to significantly reduce the deficit is through a major decline in the value of the U.S. dollar.

What Happened: In a post on X, Schiff highlighted the potential economic consequences of current trade policies, predicting that a minor decline in the dollar would not only fail to address the deficit but could exacerbate it by increasing the cost of imports.

This, he warns, would inevitably lead to higher inflation and rising interest rates, posing significant challenges to the U.S. economy.

"Without very high tariffs, the only way to significantly reduce the U.S. trade deficit is with a major decline in the dollar," Schiff wrote on X. "A minor decline would just make the trade deficit larger by increasing the cost of imports. The consequence is both inflation and interest rates will rise."

After Donald Trump‘s 2018 term, a 2023 U.S. International Trade Commission report found that Trump's tariffs, which aimed to reduce the trade deficit by protecting domestic industries, resulted in a $3.4 billion production decrease in downstream industries due to higher input costs.

These losses largely offset any gains in protected sectors, suggesting that tariffs alone may not be a silver bullet for addressing trade imbalances.

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Why It Matters: The broader economic context adds weight to Schiff's concerns. A January 2024 International Monetary Fund (IMF) paper revealed that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit but at the expense of persistent GDP losses.

The study estimated that reversing the 2018–2019 tariffs could increase U.S. output by 4% over three years, underscoring the trade-offs involved in protectionist policies.

This comes after the U.S. and China reached a 90-day truce, pausing the reciprocal tariffs on Monday this week.

Price Action: Gold Spot US Dollar fell 0.72% to hover around $3,226.84 per ounce. Its last record high stood at $3,500.33 per ounce. The U.S. Dollar Index spot was lower by 0.42% at the 100.5780 level.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, were higher in premarket on Wednesday. The SPY was up 0.22% to $588.14, while the QQQ advanced 0.37% to $517.49, according to Benzinga Pro data.