Impact of Tariff on Global Economy

A significant shift in the dynamics of contemporary international trade was brought about by the tariff policies implemented under former President Donald Trump. Under the guise of "America First," these tariffs sought to lessen trade deficits, safeguard American industries, and combat unfair trade practices, especially those attributed to China. However, the ripple effects of these harsh trade restrictions were felt well beyond American borders. Trump's tariffs caused uncertainty in global markets, upended long-standing global supply networks, and prompted retaliatory levies from important trading partners. The world economy had to swiftly adjust to a new period of economic nationalism and trade conflict brought on by changes in U.S. policy, which included everything from higher production costs in Europe to volatile commodity prices in Asia.

Global financial markets have experienced increased volatility since the U.S. announced reciprocal tariffs on April 2, 2025, prompting worries about the potential effects on the world economy. From about 2% at the beginning of 2025 to more than 20% as of April 11, 2025, the combined tariffs implemented by the US government since that date have quickly increased the nation's weighted-average tariff rate to its highest level in the last 100 years. According to the US administration, other nations have responded in a variety of ways, with China placing 125% tariffs on U.S. goods and more than 75 countries willing to engage in negotiations.

Country-Specific Tariffs:

  • IEEPA Border Security and Fentanyl Tariffs: On February 1, 2025, President Trump issued three executive orders that would take effect on February 4 and impose 25% tariffs on Canada and Mexico and 10% tariffs on China under the International Emergency Economic Powers Act (IEEPA).
    • China: On February 4, 2025, the 10% tariffs on all Chinese imports went into force. Trump announced on February 27 that he would raise tariffs on China by an additional 10% starting on March 4, which is already the case.
    • Canada: On March 4, the 30-day suspension of the Canadian tariffs went into force. On March 5, the president reduced the tariff on non-USMCA potash (a fertilizer used in farming) to 10% while exempting auto imports from the tariffs until April 2. On March 6, the president also reduced the tariff on imports covered by the USMCA trade deal (roughly 38% of imports from Canada) until April 2. The exemption was extended indefinitely on April 2. In reaction to Canada's reprisal, the president said on March 11 that the 25% levy on steel and aluminum would double to 50%. However, he later retracted the increase.
    • Mexico: On March 4, the tariffs on Mexico went into force after being suspended for 30 days. The president lifted the tariffs on vehicle imports until April 2 on March 5 and lifted the tariffs on imports covered by the USMCA trade accord (about 49% of imports from Mexico) until April 2. The exemption was extended indefinitely on April 2.
  • Venezuelan Oil Tariffs: On March 24, 2025, President Trump signed an executive order that could take effect on April 2 and imposes an additional 25% tax on Venezuela and any nations that buy gas and oil from Venezuela.
  • European Union: On February 26, 2025, President Trump declared his intention to apply 25% tariffs to European Union imports. It is unclear who has the authority to apply these charges. President Trump said on April 2 that the "reciprocal" tariff rate on EU goods will be 20%.

Product-Specific Tariffs:

  • Semiconductors and Pharmaceuticals: President Trump declared that he will impose new taxes on medications, semiconductors, and computer chips on January 27, 2025. He declared on February 18 that pharmaceutical and semiconductor rates would be "25 percent and higher." It is unclear who has the authority to apply these charges.
  • Steel and Aluminum: On February 10, 2025, President Trump issued two proclamations to increase the current Section 232 tariffs on aluminum and steel. The orders increase the tariff rate on aluminum from 10% to 25%, terminate all current exclusions from the levies, and broaden the list of derivative items. The modifications became operative on March 12, 2025.
  • Autos: On February 14, 2025, President Trump declared his intention to start imposing taxes on auto imports on April 2, 2025. According to him, the rate for automobiles would be "in the neighborhood of 25 percent" on February 18 while the rates for pharmaceuticals and semiconductors would be "25 percent and higher." Trump signed a proclamation on March 26, 2025, allowing 25 percent tariffs on cars and specific auto parts under Section 232. The tariffs will go into effect on April 3 for cars and before May 3 for auto parts. Certain imports from Canada and Mexico that contain content based in the United States will be exempt.
  • Copper: On February 25, 2025, President Trump ordered the Commerce Department to launch a Section 232 national security inquiry into copper imports; the report's conclusions are due on November 22, 2025.
  • Lumber: On March 1, 2025, President Trump ordered the Commerce Department to launch a Section 232 national security inquiry of imports of lumber, timber, and derivatives; the report's conclusions are due on November 26, 2025.
  • Agricultural Products: On March 3, 2025, President Trump announced that taxes on "external" agricultural items would go into effect on April 2, 2025.

2025 Trump Tariffs: Economic Effects:

  • A 20 percent tariff on all Chinese imports plus a 125 percent duty on all Chinese imports that are not on the exclusion list or subject to Section 232 duties, making the majority of Chinese goods 145 percent subject to tariffs. terminating the de minimis treatment of all Chinese imports.
  • A 25% tax on all Mexican imports in 2025, which believe will drop to 12% following 2025 as a result of the April 2 tariffs. Imports that comply with the USMCA are permanently free from duties.
  • A 25% tax on all other Canadian imports in 2025, in addition to a 10% duty on energy and potash imports. The assumption that the energy and potash tariffs will be lifted after 2025, and that the April 2 tariffs will lower the tariffs to 12% on all other Canadian imports. Imports that comply with the USMCA are permanently free from duties. Based on 2024 trade data, USD 256 billion worth of Canadian imports will be subject to tariffs, excluding USMCA commerce.

A basic tariff of 10% on all nations from April to June 2025, with higher rates for 60 trading partners starting in the second half of the same year. This excludes goods on the Annex 2 and electronics exclusion list as well as those subject to product-specific tariffs. With the exception of USMCA trade, imports from Canada and Mexico will be subject to a 12% duty, while imports from the EU would be subject to a 20 percent levy. China-related tariffs are modelled individually.