President Donald Trump on Wednesday is set to announce the most expansive US trade restrictions in a century, at a stroke upending the postwar global trading system and posing difficult-to-predict economic risks.
The administration’s plans to impose what Trump calls reciprocal tariffs have left investors, executives, government officials and consumers around the world guessing what lays ahead when he takes the podium at the 4 p.m. White House Rose Garden event. Deliberations are coming down to the wire, with the size and scope of new levies still being discussed Tuesday.
The lack of details so far on the structure, size and targets of the levies have left the world “flying blind” heading into the big announcement day, according to Nomura Holdings Inc. chief economist Rob Subbaraman.
“The Trump administration’s proposed reciprocal tariffs mean different things to different people,” he wrote in a recent note to clients. While a direct approach means the US matching the levies that other nations impose on US goods, “we suspect the criteria for US reciprocal tariffs will be much broader than that, and indeed more difficult to quantify.”
In the crosshairs
While Trump has yet to specify the targets, he and his lieutenants have called out the European Union, Mexico, Canada, Japan, South Korea, Vietnam and India in the quest to punish what they see as unfair trade practices. China’s goods have already been tagged with a cumulative 20% surtax.
Some $33 trillion in global trade is in the crosshairs and countries from Brazil to China face between a 4% to 90% drop in their exports to the US, according to Bloomberg Economics. The team’s global trade policy uncertainty index on Tuesday soared to the highest level in records dating back to 2009.
The average US tariff on all countries will likely rise by 15 percentage points this year, according to Goldman Sachs Group Inc. economists — warning that would raise core inflation, weaken growth and escalate the risk of a recession.
Tariff world
Wednesday’s actions come on top of steps already taken since Trump took office in January. The administration has imposed a cumulative 20% surtax on all imported goods from China, and there are 25% rates in effect on swathes of goods from Mexico and Canada. There’s also a 25% global tariff on imports of steel and aluminum. Trump has also signed a proclamation to implement a 25% tariff on autos and some auto parts imports, which is set to come into effect April 3 in Washington. There are further sector-level levies, such as on pharmaceuticals, to come.
Defining reciprocal
Trump has said his so-called reciprocal tariffs will aim to match the tariff and non-tariff barriers that trading partners enact on US firms, including what officials deem outsize trade surpluses with the US, certain taxes and item-level levies. For just over one month, officials have scrambled to follow his directive announced Feb. 13 for “fair and reciprocal trade.”
Economic hit
For months, analysts have tried to project the potential fallout of amorphous tariffs, relying on a variety of scenarios. Bloomberg Economics says a maximal approach would add up to 28 percentage points to average US tariff rates — creating a hit of 4% to US GDP and lifting prices by close to 2.5%, over a two-to-three year period.
The impact on trading partners, under all scenarios, would be severe. China, the EU and India could top the pain list when it comes to the impact on exports to the US — though their economies may manage through. Canada and countries in Southeast Asia would likely feel a bigger overall impact, according to the Bloomberg Economics analysis.
Stagflation?
Stagflation, where slow growth is paired with persistently elevated price pressures, is also a concern. There are parallels with the 1970s stagflationary episode prompted by the oil shock, according to Shang-Jin Wei of the Columbia Business School in New York and formerly chief economist of the Asian Development Bank: “Both were very unpleasant periods in US society that caused misery for many households. This time, we risk repeating the unpleasant experience for unnecessary and avoidable policy choices.”
Much, though, depends on the unknowns — many of which will likely not be answered in the Rose Garden, including exact final tariff rates by product and country, trading partners’ retaliation, and the response of businesses and consumers.
Tit-for-Tat?
Trading partners have adopted a variety of approaches so far. China, long a focus for Trump, hit back at the tariffs earlier this year, though the surtax was smaller than the US one, and applied to a more limited set of American goods. The European Union and Canada took immediate reprisals against the US president’s metals duties.
Many major economic powers have sought to negotiate exclusions to levies. Countries including Vietnam have vowed to buy more American goods to try and address their surpluses with the US and slashed import levies on a range of products.
Ripple effects
US stocks logged their worst quarterly performance since 2023 in the first three months of this year, though much of the rest of the world saw gains. US Treasuries climbed almost 3%, in part thanks to rising worries about growth. Gold has hit record highs while the dollar has weakened. Some investors argue that the pessimism is overdone and flag the potential for trade deals in time.
Big business
Many American companies have expressed concern about new duties driving up costs and eating into margins. Foreign executives are having to weigh whether to shift at least some production to the US in order to skirt the tariffs.
“Clearly, the global business community looks at this with trepidation” given the lack of clarity and high stakes involved in rebalancing an economy that accounts for about a quarter of world GDP, said John Denton, a former Australian diplomat who’s now secretary general of the International Chamber of Commerce.
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