Global | The economic impact of Trump’s tariffs

Summary

Since his return to the White House, Donald Trump has been ramping up his protectionist agenda, reigniting uncertainty over trade and global growth. The increase in tariffs on imports of goods not only affects the US economy, but its repercussions extend worldwide.

Key points

• Key points:
• The increase in tariffs, which function as an import tax, is a clear example of a negative supply shock, as it makes goods more expensive and constrains economic activity.
• Moreover, uncertainty over its effective implementation —in terms of timing, magnitude and products affected— generates a negative demand shock, as many investment decisions are put back because the outcome is hard to predict.
• Economic theory and empirical evidence have shown that tariffs reduce economic efficiency, generate welfare losses, and distort global markets.
• Trump acknowledged in his recent speech to Congress that tariffs could cause short-term “turbulence” within the US economy. He has good reason to be concerned about the ramifications of his tariff policy.
• Unless rationality prevails and Trump changes his tone, the eurozone and China will take the brunt of this wave of US protectionism as we move through 2025.

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