For the last month, the main economic topic has been the tariff, or if you prefer, trade war between the US and other countries. Sometimes it is good to step back a little and simply describe systematically what this means for the various parties and what effects can be expected. At the same time, thanks to a fresh forecast from the International Monetary Fund, we have the first solid quantitative estimate of the introduction of new tariffs.

The current situation is reminiscent of 1930, when the US also resorted to a significant increase in tariffs, in terms of the scale of the new tariffs and retaliatory measures. Subsequently, in the following years, world trade fell by 25 per cent. The Great Depression needs no reminder.

The situation is not difficult to understand. We can frame it in a simple model with aggregate demand and supply. The introduction or increase of an import tariff represents a supply shock for a country that takes such a step. The result is a negative impact on GDP and higher inflation. Conversely, for other countries that export part of their production (directly or indirectly) to the tariff-raising country, the new situation represents a negative demand shock. GDP falls, inflation weakens. What happens if the response to the new tariffs is retaliatory tariffs on the part of other countries? Everyone will be exposed to a combination of a negative supply shock and a negative demand shock. With a significantly negative impact on GDP and an ambivalent impact on inflation.

So much for economic theory. Now we can quantify it in concrete terms. The International Monetary Fund has published a new macroeconomic forecast, which already includes the impact of the new tariffs announced at the beginning of April and the retaliatory measures. However, it does not include the escalation of tensions between the US and China that followed.

While the IMF's previous forecast from October last year envisaged Czech GDP growth of 2.3 per cent this year, the growth estimate has now dropped to 1.6 per cent. The forecast for next year has worsened by 0.5 percentage point to 1.8 percent. Put simply, the trade war could cost the Czech economy around CZK 60 billion this year. With a composite tax quota of 35 per cent, this means CZK 20 billion less for the public finances.