Article
ArticleHow do US tariffs change the economic outlook?
The reciprocal tariffs announced by President Trump yesterday were more aggressive than expected. While there is a possibility that some of these get negotiated down in time, tariffs could equally move higher still after retaliation and additional sector-specific tariffs. A large stagflationary shock is coming.
Authors
Lizzy Galbraith
Senior Political Economist
Robert Gilhooly
Senior Emerging Markets Economist
Luke Bartholomew
Deputy Chief Economist
Paul Diggle
Chief Economist
Duration: 1 min
Date: 03 Apr 2025
Key Takeaways
- US President Donald Trump announced a global baseline plus reciprocal tariff regime that exceeded our base case expectations and looks much more like the tariff assumptions in our “Trump unleashed” scenario.
- Specifically, the US will impose a minimum universal tariff of 10% on most trade partners, and higher reciprocal tariffs on roughly 60 trading partners based on their trade deficits with the US.
- We estimate that the US average tariff rate will increase to 22% given these measures. This is above 1930s highs and last reached in the early 1900s.
- While there may be scope for this to come down over time as deals are done with trade partners, it’s also possible that the tariff level keeps moving higher in the near term as retaliation occurs and more sector-specific tariffs are introduced.
- Pending further modelling, we think the full increase in US tariffs so far in Trump’s term could add 2% to the US price level and push GDP down by 1-2%. This would leave the US economy flirting with a recession.
- Beyond the US, while there are no winners from this trade war, a relative spectrum has emerged. Canada and Mexico appear to get off lightly, China and Asian economies are heavily impacted, and Europe sits somewhere in the middle, with the UK facing a lower rate than the EU. Nevertheless, the tariffs will be a negative growth shock for the global economy.
