London
UJ
—
There’s a well-known phrase that suggests when America catches a cold, the rest of the world sneezes — a concise way to illustrate how fluctuations in the world’s leading economy can have far-reaching effects on others.
However, that saying barely scratches the surface of the substantial repercussions likely to arise from US President Donald Trump’s recent imposition of significant new tariffs on America’s trading allies.
“The US isn’t just sneezing; it’s severing one of its own limbs,” stated Paul Donovan, chief economist at UBS Global Wealth Management, in a conversation with UJ.
Earlier this year, the economy in the US was “in an excellent position,” he remarked. Now, “if these tariffs persist, they will likely push us into a recession.” He added that this shift is expected to negatively affect economies globally.
On Wednesday, Trump declared a 10% baseline tariff on all goods entering the United States, along with higher tariffs on imports from nearly 60 countries. Countries like China and the European Union will experience new duties of 34% and 20% respectively.
Analysts suggest that the latest tariffs will harm the US economy just as much, if not more, than those of its trading partners.
According to a note from JPMorgan, if Trump maintains the tariffs introduced on Wednesday, recession is a probable outcome for both the US and the global economy this year.
These tariffs are also expected to inflame prices in the US, predicting an increase of nearly 2% in the Consumer Price Index by 2025, according to the bank.
The primary indicator of US inflation has struggled to decrease these past few years, illustrating a 2.8% rise in February compared to the previous year, as per data from the Bureau of Labor Statistics.
“The total effect of this year’s tariff increase should be regarded as a tax increase for the US, totaling around $660 billion,” the analysts at JPMorgan noted, identifying this as the largest tax hike in several decades. “The inflationary impact will be considerable.”
The economic “shock” resulting from Trump’s tariffs will be intensified by any retaliatory actions taken by America’s trading partners against US products, the analysts added.
And retaliatory actions seem likely. Following Trump’s announcement, the EU— the largest single market for US goods exports — stated it was preparing a response, and China denounced the US’s actions as “unilateral bullying,” vowing to retaliate.
Economic crises are generally characterized by widespread job losses, bankruptcies, and foreclosures — a stark contrast to Trump’s stated goal of “Making America Wealthy Again” through his tariff policies.
The US president might still choose to suspend or modify the tariffs he announced on Wednesday, as he has with other import taxes recently. However, any new import duties are anticipated to hinder the US economy, according to Donovan at UBS.
Likewise, Deutsche Bank economists noted an “increase in recession risk in the US” in a report released on Thursday.
Other economies are expected to face significant challenges on multiple fronts.
A downturn or reduced economic growth in the US would lead American consumers to cut back on spending, subsequently lowering demand for foreign products.
Should businesses outside the US face a decline in demand for their products, they may become more cautious, Donovan suggested. “Will they continue investing, will they keep hiring?”
Deutsche Bank economists expect unemployment in the EU and the United Kingdom to rise over the next 12-18 months due to Trump’s tariffs.
The new import tariffs could also reduce demand for foreign products in the US by making them pricier than comparable local products. This aligns with Trump’s intention — he has stated that his tariff agenda is meant to enhance demand for US-made goods and fortify the manufacturing sector.
Additional challenges faced by exporters to the US include uncertainty, disrupted supply chains, and cumbersome bureaucracy, as Ursula von der Leyen, president of the EU’s executive branch, highlighted. “All businesses, whether large or small, will start feeling the strain immediately… The costs associated with doing business with the United States will rise dramatically,” she stated on Thursday.
Consumers in other countries will suffer mostly if their governments retaliate against the Trump administration.
Thomas Sampson, an economics professor at the London School of Economics, indicated to UJ that the immediate effects of the US tariffs on European consumers would be relatively minor in the absence of retaliation. However, escalated tariffs on American imports would lead to increased prices.
In such scenarios, “European consumers will face similar price hikes as their US counterparts,” he stated.
The EU had previously responded to Trump’s steel and aluminum tariffs by revealing countermeasures on American goods spiking to 26 billion euros ($29 billion) in tariffs on products like boats, bourbon, and motorcycles.
This time, however, the EU may take a different approach. France’s finance minister indicated that the bloc is not aiming for reciprocal tariffs in response to Trump’s recent trade announcements, as it could negatively impact European consumers.
Rather, measures are being contemplated that target individual companies instead of entire sectors, Eric Lombard disclosed to UJ affiliate BFMTV.
Other nations might not exercise such restraint. “Should other countries retaliate, it may generate similar inflationary pressures elsewhere,” noted Antonio Fatas, an economics academic at INSEAD, in an interview with UJ.
Nonetheless, experts assert that America’s trading partners benefit from the fact that they only have tariffs imposed on their goods by one nation— the US— while the US could face counter-tariffs from many significant trading partners.
According to Oxford Economics, the global economy is likely to avert a recession this year. However, its performance is expected to remain lackluster, with growth potentially dipping below 2%, wrote Ben May, director of macroeconomic research, in a report released Thursday.
“This would represent the weakest annual growth rate since the global financial crisis, aside from the pandemic period,” he commented.
