The most recent round of U.S. trade tariffs, presented on Wednesday, will further diminish the strength of a global economy that has barely recovered from the post-pandemic inflation surge, an economy burdened by record debts and unsettled by geopolitical conflicts.
Experts are bracing for the worst, as commented by Reuters.
Trump's Tariffs Could Bring About a Global Recession
Depending on how President Donald Trump and leaders of other countries act now, it could be a turning point for a globalized system that, until now, has taken America's strength and reliability, its largest component, for granted.
But in the coming months, the effects of price increases - and hence, reduced demand - will simply prevail after the new taxes are applied to thousands of goods bought and sold by consumers and companies around the world.
"I see it as a drift of the American and global economy towards weaker performances, more uncertainty, and possibly heading towards what we could call a global recession," said Antonio Fatas, a macroeconomist at the INSEAD business school in France. "We are heading towards a world that is worse for everyone, as it is more inefficient," commented Fatas, who has been a consultant for the International Monetary Fund and the World Bank.
It Will Be Hardest for the Poor
Speaking on Wednesday in the Rose Garden at the White House, Trump announced a basic tariff of 10% on all imports and presented a table showing higher taxes for some of the country's largest trading partners, including 34% for China and 20% for the European Union.
A 25% tariff on automobiles and auto parts had already been confirmed earlier.
Trump stated that the tariffs will bring vital production capacities back to the United States from a strategic standpoint.
- US Imposes Tariffs on All Countries, Coming into Effect Quickly (Video) UK Taxes Half of EU's. Initial Effects. Harsh Reactions
- How EU and China React to Trump's Tariffs. What Other Affected Countries Are Doing
Considering that global production is already growing below expectations, statisticians will rush to calculate the impact of this measure - a task not easy, given that Trump has suggested in the past that this could be just the opening move in negotiations with uncertain outcomes.
IMF Managing Director Kristalina Georgieva said this week at a Reuters event that she does not currently see a global recession. She added that the Fund expects to make a small "downward adjustment" to its 2025 forecast of global growth of 3.3% soon.
However, the impact on national economies will be very divergent, considering the spectrum of tariffs ranging from 10% for the UK to 49% for Cambodia.
If the result is a broader trade war, it would have even greater repercussions for producers such as China, who would need to seek new markets in the face of reduced demand from consumers worldwide.
And if the tariffs push the U.S. itself into a recession, it will strongly affect developing countries, whose destinies are closely linked to that of the world's largest economy.
Chain Effects of Trump's Tariffs
"What happens in the United States does not stay in the United States," said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley. "The economy is too large and too connected to the rest of the world through trade and capital flows for the rest of the world not to be affected," Eichengreen pointed out.
The chain effects for policymakers in central banks and governments are also potentially significant.
A disruption of supply chains that have kept prices in check for billions of consumers for years could lead to a world where inflation tends to be "hotter" than the 2% level that central bankers currently consider an easily manageable target.
And economies with weaker production growth would make governments struggle even more to pay off the record $318 trillion global debt and find money for budget priorities, from defense spending to climate measures and social assistance.
And if the tariffs do not achieve Trump's stated goal of encouraging businesses to invest in domestic production in the U.S., given the internal labor force shortage that the country already faces nearing full employment?
Some see Trump seeking other ways to eliminate the U.S.'s global trade deficit that irks him so much - for example, by asking others to participate in a rebalancing of exchange rates in favor of American exporters.
"We will continue to see him presenting potentially riskier ways to deal with the continued power of the dollar," said Freya Beamish, chief economist at investment strategy firm TS Lombard.
An Upside-Down World
Such measures could jeopardize the privileged position of the dollar as the preferred global reserve currency - an outcome that few foresee, if only because there are currently no real alternatives to the dollar.
However, European Central Bank President Christine Lagarde said on Wednesday at an event in Ireland that Europe must act now and accelerate economic reforms to compete in what she called an "upside-down world."
"Everyone benefited from a hegemon, the United States, engaged in a rules-based multilateral order," she said about the post-Cold War era of low inflation and increasing trade in an open global economy. "Today we have to deal with closure, fragmentation, and uncertainty," Lagarde warned.