When Donald J. Trump promoted the concept of a 10 percent blanket tariff during his campaign, it caught many off guard, regardless of their stance on the idea.
Concerns were raised regarding potential inflation hikes, job losses, and the risk of slowed growth or recession. The notion seemed so outrageous that most economists and Wall Street analysts, who explored various scenarios, regarded a 10 percent tariff more as a negotiating tactic than a realistic policy.
Now, following a flurry of announcements from the White House that promised, enacted, retracted, delayed, adjusted, and reinstated tariffs, the 10 percent option appears more moderate than revolutionary, especially in light of the escalating trade war between China and the United States.
However, 10 percent tariffs have not diminished in their impact.
At that figure, universal tariffs affect more than 10 times the number of imports compared to those targeted during Mr. Trump’s initial term, and they are significantly broader and higher than any tariffs the U.S. has enacted in over 90 years.
“The tariff rate is quite severe,” stated Carsten Brzeski, chief eurozone economist at ING, a Dutch financial institution. “It brings us back to levels not seen since the 1930s.”
In addition to measures aimed at China, Mr. Trump also ramped up a comprehensive list of punitive tariffs — including a flat 10 percent on most imports — as of April 9.
“For U.S. consumers, this translates to increased prices for everything,” Mr. Brzeski noted.
Earlier studies suggested that a 10 percent tariff could cost the average American household between $1,700 and $2,350 annually.
Opting for a cheaper American mustard over a French brand may not yield the expected savings. When tariffs on imports rise, domestic producers often seize the chance to elevate their prices as well, economists have observed.
Neil Shearing, group chief economist at Capital Economics, mentioned that his team adjusted its predictions the day after Mr. Trump’s election, factoring in a 10 percent blanket tariff alongside increased levies on Chinese and automobile imports.
“While the proposal was extreme, it wasn’t beyond reason,” Mr. Shearing said. While inflation would likely rise and output would decrease, the updated forecast didn’t predict a recession for the United States.
Nevertheless, the assumptions regarding tariff levels were considered extreme at the time. “It took me two and a half months to reassure clients who insisted, ‘You can’t seriously expect this will happen,’” Mr. Shearing remarked.
Today, with tariff policies potentially poised to disrupt the global economy, such a report would be met with relief.
Economists and policymakers are still astonished that an American president could single-handedly thrust the world into such economic disarray and then celebrate the outcome.
Consumer and business confidence has significantly declined. Uncertainty is hindering purchases, from homes and cars to new factories. Investors have signaled their skepticism regarding the U.S. economy by divesting from Treasury bonds, which are the traditional safe haven during uncertain times.
The ongoing conflict between the United States, the largest consumer globally, and China, the largest manufacturer, is overshadowing other trade measures. Both nations have imposed triple-digit tariffs on each other, alongside various trade restrictions on essential items like rare earth minerals, magnets, and semiconductors.
Mr. Trump has hinted at further tariffs on chips and pharmaceuticals, while China and other nations contemplate their retaliation strategies.
According to an estimate from Oxford Economics, the collective tariffs in place could result in a 5 percent decline in world trade this year. This figure is comparable to the fallout from the pandemic-related paralysis in 2020 or the global recession of 1975.
Such a decline in trade would erase billions of dollars in goods and services produced worldwide and could cut projected overall growth by 1 percent, as per Oxford’s assessment.
China and the United States are pivotal in driving the global economy. If their economic conditions deteriorate, it reverberates across the world, particularly impacting poorer and emerging economies that may face reduced demand for their goods and services.
For instance, many African nations may not engage in significant trade with the United States, but they do export crucial commodities like oil and copper. As worries of a global recession increase, prices for these commodities are decreasing. Consequently, oil-exporting countries like Nigeria may see a drop in revenue, exacerbating budget constraints and limiting their ability to meet debt obligations.
A significant portion of the anticipated economic damage could have been mitigated had the tariffs not been implemented so erratically. Should a recession occur in the United States this year, Mr. Shearing of Capital Economics noted that the chaotic rollout could be the tipping point.
Video credits: Benoit Tessier/Reuters; Erik S. Lesser/EPA, via Shutterstock; Scott Olson and Justin Sullivan/Getty Images; Jim Watson/AFP, via Getty Images; Bryan Anselm, Lianne Milton and Karsten Moran for The New York Times
