Tariffs, trade and transatlantic divergence

Dr Linda Yueh, Adjunct Professor of Economics at London Business School, this week once again joined Sirius XM Business Briefing's host, Janet Alvarez, to analyse diverging inflation trends across the US and Europe, and to assess the economic shockwaves from a major US Supreme Court ruling on tariffs.

Inflation paths split across the Atlantic

Yueh noted that while US growth has slowed to 1.4 per cent in the fourth quarter, it remains stronger than in the UK and the eurozone, where annual growth is hovering around 1 per cent. That relative weakness in Europe, she explained, has helped drive inflation down more quickly.

UK inflation has fallen sharply to three per cent and is expected to reach the two per cent target within months. Across the eurozone, inflation is already at target. Softer demand, easing wage growth and the absence, so far, of a renewed energy shock have all contributed to the disinflationary trend.

By contrast, stickier inflation in the US reflects firmer growth conditions. “Economic weakness in Europe is feeding through to lower price pressures,” Yueh observed, pointing also to rising UK unemployment, now above five per cent, its highest level in nearly five years.

Europe’s structural growth challenge

Turning to longer-term prospects, Yueh argued that Europe’s slower growth is deeply structural rather than cyclical.

She referenced reform proposals set out by Mario Draghi, the former European Central Bank president, highlighting regulatory fragmentation and barriers within the single market. Although the EU’s population exceeds that of the US, businesses still face significant cross-border frictions.

Financing structures also differ markedly. Around 80 per cent of corporate financing in the US comes from capital markets, compared with roughly 20 per cent in Europe, where firms rely more heavily on banks. That distinction matters for innovation and scale, Yueh explained, as capital markets are often more supportive of higher-risk growth ventures.

While partnerships between European banks and US private equity investors are increasing, regulatory complexity and market fragmentation continue to weigh on Europe’s long-term potential growth rate.

Supreme Court ruling reshapes tariff debate

During the interview, breaking news emerged that the Supreme Court of the United States had ruled that the President exceeded delegated authority in imposing sweeping reciprocal tariffs under emergency powers legislation.

Yueh described the decision as “massive” in scope, given that the reciprocal tariffs were a central pillar of US trade policy and applied to more than 100 countries. The Court found insufficient congressional authorisation for tariffs of unlimited duration and scope under the cited statute.

However, she cautioned that this does not signal the end of tariffs. Other authorities, such as Section 232 measures on steel and aluminium, remain intact and were not challenged in the case. “I don’t think anyone thinks this is the end of tariffs,” she said. “It may be tariffs by other means.”

The ruling introduces significant uncertainty. Trade agreements negotiated under the reciprocal tariff framework may need to be revisited. Revenue projections, once estimated at tens of billions of dollars per month, are now in question, with implications for fiscal planning and deficit financing.

Yueh suggested markets’ relatively muted reaction reflects expectations that trade tensions will persist, albeit through different legal channels. For businesses and investors, however, uncertainty itself may weigh on decision-making and growth.

As the global economy navigates diverging inflation paths and renewed trade complexity, Yueh emphasised that structural reform, whether in Europe’s single market or in the governance of trade powers in the US, will shape the next phase of economic stability and growth.

To listen to the entire discussion, click here