Trump’s tariffs plunge the world into the depths of a trade war

Donald Trump is pushing the global economic system to its limits. During a press conference on Wednesday, he introduced new tariffs, claiming he was being “kind” by only increasing them to half the level that his administration estimates other countries impose on U.S. imports. However, consumers, businesses, and international leaders are unlikely to perceive this as kindness. The tariffs will start at 10% for all countries but will escalate for various trade partners—34% for China, 20% for the EU, and 26% for India—bringing U.S. trade duties to their highest levels since the Great Depression. Canada and Mexico will face their own tailored tariff structures. The dual objectives of generating trillions in revenue while encouraging domestic manufacturing are fundamentally at odds, complicating any last-minute negotiations to reduce the tariffs. In the interim, the economic repercussions will be substantial.

The announcement made by Trump during a “Liberation Day” event in the White House Rose Garden surprised many, even after previous aggressive actions. Fitch Ratings reports that the effective U.S. tariff rate on all imports will now reach 22%, a significant increase from 2.5% last year, matching rates not seen since 1910. Various stakeholders, including agricultural producers, automakers, the U.S. Chamber of Commerce, and labor unions, have expressed concerns about the potential economic fallout from these new trade barriers, but their warnings have gone unheeded.

The array of complaints—from direct tariffs on U.S. goods to poultry regulations and sales taxes—creates a complex picture of other nations’ alleged tariffs, raising the stakes even higher. Despite Trump’s claims that the U.S. has been systematically disadvantaged by a postwar order it helped establish, dismantling this system could very well lead his own country into a recession unless he quickly reconsiders his approach.

A pessimistic forecast from Moody’s predicts that 20% tariffs could lead to unemployment reaching 7.3% by early 2027, up from 4.1% in February, while stock markets may drop by 25% during the same timeframe. The Yale University Budget Lab estimates that such tariffs, in addition to those already in place, would impose a burden of at least $3,400 on the average American household. Consumer and business confidence is already shaken, as indicated by the University of Michigan’s consumer sentiment survey, which revealed that 66% of respondents expect higher unemployment in the coming year—this is the highest level since the financial crisis.

The U.S. may not fully appreciate its economic position until it is significantly diminished: Chinese buyers are increasingly purchasing Brazilian soybeans instead of American ones, and Canada is enhancing its military and economic ties with Europe. Additionally, China, South Korea, and Japan are collaborating on their responses. U.S. consumers represent about 14% of global imports despite comprising only 4.2% of the world’s population, according to data from the U.S. Trade Representative and the World Bank, indicating that the appeal of the U.S. market remains substantial. However, the broad range of policies that Trump considers as illegitimate tariffs could lead to negotiations where partners present extensive lists of adjustments in exchange for leniency.

Nevertheless, the overarching domestic agenda allows little flexibility. Peter Navarro, an aide to the president, stated that tariffs could generate $6 trillion, which is crucial given the significant budget deficit. Trump also anticipates that these tariffs will compel manufacturers worldwide to relocate to the U.S. to avoid tariffs. It remains uncertain how other nations can balance these conflicting objectives, which poses a risk of a more prolonged crisis.