President Donald Trump’s decision to unilaterally launch a global trade war could be one of the worst economic statecraft blunders in American history. The administration has imposed tariffs to an extent that would have been unimaginable a short time ago. The rest of the world is now subject to tariffs ranging from 10 percent to 50 percent, in many cases on top of existing tariffs already in place. This was all done with little preference given to countries that are allies or whose exports are critical to support the U.S. economy. Trump’s trade war will cost American families dearly by raising consumer prices. It has already reduced their savings in the stock market. And, it is bound to fail at one thing Trump promised to do: bring back jobs.
The president, during a Rose Garden ceremony on Wednesday, announced country-specific tariffs on dozens of countries that maintain trade surpluses with the United States and an across-the-board tariff on all countries. The baseline 10 percent tariff is set to take effect on April 5, and the country-specific duties will kick in on April 9. This drastic change to American trade policy occurred without the approval of Congress and via a declaration of a dubious national emergency.
Trump’s trade wars will harm Americans
Trump’s new tariffs are the largest tax hike in nearly 60 years, and a highly regressive one at that. The Budget Lab at Yale projects that Trump’s tariffs announced to date will increase U.S. prices by 2.3 percent in the near term—the equivalent to an average consumer loss of $3,800 per household. Households near the bottom of the income distribution will see a decrease in disposable income that is 2.5 times larger than that experienced by those in the top decile. Other economic analysts have updated their forecasts to predict higher inflation, lower economic growth, and a greater probability of recession this year.
Trump’s tariffs announced to date will increase U.S. prices by 2.3 percent in the near term—the equivalent to an average consumer loss of $3,800 per household.
As a result of Trump’s massive new tariffs, Americans can expect to pay more for everyday goods:
- At the grocery store, tariffs on Latin American nations could push up the price of bananas, coffee and chocolate.
- Wine imported from Europe could increase by up to 40 percent, putting pressure on importers and small businesses.
- Prices for iPhones could increase by up to 40 percent due to the new 46 percent tariffs on Vietnam and 34 percent tariffs on China.
- Japanese manufacturers of video game consoles have likely already increased prices to preempt Trump’s tariffs—and the 24 percent tariff on Japan could see a $400 console soon cost $500.
- According to the American Apparel and Footwear Association, 97 percent of clothing is imported from overseas, including from Vietnam (46 percent tariff) and Bangladesh (37 percent tariff).
These price increases will be in addition to those associated with prior tariff announcements on specific goods. For example, Bank of America estimates that U.S.-assembled vehicles are set to increase by $3,285 per vehicle due to Trump’s tariffs on vehicles and auto parts, with sales expected to drop by 2.5 million this year. Goldman Sachs predicts that foreign-made cars will increase by between $5,000 and $15,000 per vehicle due to the auto tariffs. One interesting note: The administration’s new tariff measures did include a carve out—it won’t apply to the oil and gas industry—an industry whose donations strongly backed Trump’s presidential campaign.
The Trump administration’s decision to increase the average tariff rate to 22 percent is simply staggering. It is a level not seen since 1909, when tariffs were the primary source of revenue for the federal government—though that changed four years later when Congress enacted the income tax. In the speech announcing the administration’s new tariffs, President Trump highlighted the importance of tax cuts. At the same time his trade wars are hiking prices for middle-class families, he is pushing Congress to pass a tax package of at least $5.3 trillion of giveaways, which would benefit the wealthy.
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After all its talk of calculating “reciprocal” tariffs based on charges to the United States in terms of tariffs, taxes, and regulatory burden, the White House determined each country’s tariff rate by dividing the trade deficit each country had with the United States by its exports. As a result, Trump’s tariff formula is based only on trade in goods and does not include services—a category that includes financial services, digital services, and tourism and in which the United States enjoys a trade surplus. For example, the European Union purchased $238 billion in U.S. service exports in 2022—more than $70 billion more than the European Union sold to the United States. The Trump’s administration’s methodology also doesn’t account for the fact that, in many instances, the trade deficit is driven not by market barriers abroad but because Americans have greater per capita wealth and simply want to buy more things from a foreign market than consumers in that market want to buy from the United States.
It is unclear how the Trump administration’s tariff rates will change in the future, as both the trade deficit and the amount of a country’s exports to the United States is likely to change considerably in response to Trump’s actions. Treasury Secretary Scott Bessent on Wednesday called the tariffs the “high-water mark,” indicating potential changes to come. The lack of long-term clarity, though, is likely to cause investors to hold off on major investments until they have a better understanding of the long-term market dynamics at play.
Trump’s trade wars will cause lasting damage with international partners
Trump’s tariffs will be felt by everyone. U.S. consumers will see higher prices, and U.S. business will suffer from strong retaliatory actions abroad and far more expensive inputs. American workers are workers likely to face significant downward pressure on wages and benefits because of their employers being less competitive.
Trump’s actions are already generating economic retaliation against the United States. Canadian stores started taking U.S. products off their shelves last month. Travel to the United States is down in February, as foreign visitors look elsewhere. And many countries are considering retaliatory measures against the United States, including but not limited to tariffs on U.S. exports. The European Union has readied significant retaliatory tariffs and is said to be considering other actions, including limiting American banks’ access to certain EU markets and actions that target the U.S. tech industry. China has also responded with a 34 percent tariff on all U.S. exports, a measure that is likely to have a considerable impact on U.S. farmers, particularly corn and soybean exporters that were already facing pressure in China from competitors in South America.
Trump’s tariffs will be felt by everyone. U.S. consumers will see higher prices, and U.S. business will suffer from strong retaliatory actions abroad and far more expensive inputs.
Foreign governments are going to lengths to make U.S. consumers aware of the negative impact that Trump’s trade war is having on their pocketbooks. The Canadian government has paid for billboard advertisements in several American cities, noting that tariffs are a tax on American consumers. And Volkswagen plans to add import fees to the sticker prices of its vehicles shipped into the United States.
The Trump administration may be hoping that drastic tariffs will entice foreign leaders to approach them with concessions. That is perhaps why the country-specific tariffs will go into effect one week from the announcement rather than “immediately” as the president had announced earlier. But the incentive for world leaders to publicly cave to the Trump administration’s bullying is low. President Trump’s deep unpopularity abroad provides world leaders with a politically useful foil. Canadian Prime Minister Mark Carney has seen his electoral fortunes turn around as he “stands up” to Trump. It is a lesson that other countries are closely watching. In Europe, British Prime Minister Keir Starmer and French President Emmanuel Macron have seen their popularity increase following their use of Trump as a foil. Claudia Sheinbaum in Mexico, too, has benefited from her willingness to counter Trump’s coercive threats. As a result, tariff rates could potentially remain high for some time, as world leaders choose to retaliate in a show of strength rather than negotiate with the Trump administration for lower rates, which could be interpreted as weakness by their domestic constituencies.
In markets of geostrategic competition—particularly in Africa, Southeast Asia, and Latin America—the Trump administration’s new tariff regime must be viewed alongside its pullback of American aid. In both instances, local economies that relied on relationships with the United States are likely to be upended, eroding American influence to the benefit of China, and creating uncertainty that could have repercussions for regional security.
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The United States will be weaker and alone
The United States faces complex challenges—climate change, terrorist threats, pandemics, competition from nonmarket economies such as China, irregular migration—that require ongoing collaboration with foreign governments. Unfortunately, Trump’s actions have ruined these relationships, and it may take generations to repair them. America’s partners are moving on, increasingly viewing the United States as unreliable at best, an outright adversary at worst. This week, for example, Japan and Korea announced a deal to promote regional trade without the United States. And Germany’s Economy Minister Robert Habeck called for a strong unified response from Europe in opposition to Trump’s tariffs.
The last time the U.S. government raised enormous tariff walls was through the Smoot-Hawley Act in 1930—and those tariffs were mostly lower than those announced by the Trump administration. That action was as part of a worldwide tariff-raising wave in which most countries’ retaliatory measures were not focused on one particular country. This time around, the entire world will have a single target for its retaliation: the United States. The result is likely to be a freeze out of American businesses from international markets, as global consumers seek out non-American alternatives, and a far less competitive U.S. export base if other countries penalize U.S. firms for the actions of the Trump administration.
Trump’s tariffs do not end the “race to the bottom”
Importantly, the Trump administration’s nationalist tariffs pin the trade policy decisions of an exporter’s government on the exporter itself and ensure that every exporter is blamed for a trade deficit that they may or may not have contributed to in a meaningful way. A small manufacture from Japan that supplies a U.S. manufacturer with a component part, for example, likely has little to do with the overall trade deficit the United States maintains with Japan—and, yet, they are liable to pay the same tariff as all other Japanese firms. Such a system may make sense in a place such as China, where the government is so intertwined with the private sector, but not Europe or other market-based economies.
Tariffs can be useful as one component of a larger plan to regrow American manufacturing and promote American competitiveness, but Trump’s tariffs are not a strategic part of a comprehensive strategy.
Trump’s tariffs also do not account for component parts that are included in a product shipped to the United States. This is a major loophole. The effective tariff rate on Chinese imports will be 76 percent according to the Peterson Institute for International Economics, combining the impact of Trump’s earlier tariffs on China; the administration’s new “reciprocal” tariffs; and tariffs that date to Trump’s first term. But Chinese manufacturers are likely to still account for a large percentage of a good’s materials and component parts, even if the product is eventually assembled in a lower-tariffed country for export to the United States.
In fact, some global companies may determine that it is simply easier to exclude the United States from their supply chains altogether. U.S. manufacturers may find themselves unable to source inputs at competitive prices and discover that demand abroad for their products is limited on account of higher operating costs and their association with the United States. Just hours after the president’s “liberation day” event, Stellantis—the maker of Ram trucks and Jeeps—announced that it was temporarily laying off 900 American workers, since Trump’s auto tariffs required it to pause production at its facilities in Mexico and Canada, which would have knock-on effects at several of its U.S. based powertrain and stamping facilities.
What’s more, the Trump administration’s policy clearly incentivizes firms with an intent to export to the United States to move production to countries with the lowest tariff rate. Many of these markets are the worst in terms of workers’ rights and protections. Of the 89 countries that scored the worst on the International Trade Union Confederation (ITUC) Global Rights Index—which tracks working conditions in every country around the world—about half (45) were awarded the Trump administration’s lowest tariff rate. These are countries, including Saudi Arabia, Afghanistan, and Congo, that the ITUC categorizes as either providing “no guarantee of rights” for workers, or employing “systematic violations of rights.”
Conclusion
The Trump administration’s trade war is taking a sledgehammer to the U.S. economy with collateral damage that will touch every American family, who will find prices higher and supply chains disrupted. If April 2, 2025, was supposed to be “liberation day,” perhaps it will be better remembered as the day Donald Trump laid waste to the U.S. economy and Americans’ economic security for years to come. It is a legacy that this administration will own going forward.