Tariff Mania: Economic world becoming fragmented
Published April 7 2025
On April 2 2025, the United States government, under the leadership of President Donald Trump, announced new tariffs targeting a range of foreign goods. This move marks the latest chapter in Trump’s ongoing trade policy, which has been characterised by protectionist measures aimed at securing more favorable trade balances for the US. These tariffs are not only the continuation of the administration’s efforts to reshape international trade dynamics but also come at a time when the global economy faces mounting challenges, including supply chain disruptions, inflationary pressures, and increasing geopolitical tensions.
Details on Tariffs Announced by Trump on April 2 2025
In his announcement on April 2 2025, President Trump revealed that the US would impose a broad set of tariffs on goods from several key trade partners. The tariffs, which are estimated to affect over $200 billion worth of imports, include duties on machinery, electronics, textiles, and steel products. The new tariffs were specifically designed to target countries that Trump claims have taken unfair advantage of US trade policies and have been involved in intellectual property theft, currency manipulation, or other practices that harm US economic interests.
This announcement builds on Trump’s previous tariff policies, which began shortly after his inauguration in 2017. Over the years, his administration has progressively levied tariffs on a variety of foreign goods, most notably during the US-China trade war that escalated in 2018. These measures were framed as efforts to reduce the US trade deficit, protect American jobs, and safeguard national security interests. Key tariff milestones under Trump include:
2018: A series of tariffs on steel and aluminum imports from countries such as China, Canada, Mexico and, the European Union aimed at protecting US manufacturing industries.
2019: A significant escalation in the trade war with China, with the US imposing tariffs on hundreds of billions of dollars worth of Chinese goods, including electronics, machinery, and consumer products.
2020-2021: Amid the COVID-19 pandemic, the Trump administration continued to focus on tariffs against China, including efforts to hold China accountable for not meeting the terms of the "Phase One" trade deal.
According to the Trump administration, the new set of measures announced in 2025 are a form of ‘reciprocal tariffs’ due to the US being treated unfairly by the world on economic matters. The administration has indicated that these tariffs could further increase if foreign nations do not comply with the US's demands for trade reforms or if any retaliatory action is carried out.
US Stock Market Response
Following the announcement of the tariffs, the US stock market experienced significant volatility, reflecting investor concerns about the potential long-term impact of these measures. The S&P 500, a key benchmark of US equities, dropped by over 3% immediately following the announcement, marking one of the largest single-day declines in recent months. The tech-heavy NASDAQ index fell by 4%, as investors anticipate the tariffs could hurt the earnings of major tech companies that rely on international supply chains. Both indexes have continued to fall in the subsequent days and are anticipated to fall further.
The immediate reaction of the stock market was a blend of uncertainty and pessimism. Many analysts warned that the tariffs could lead to higher costs for consumers and businesses, exacerbating the already fragile economic recovery from the pandemic induced recession. Companies involved in manufacturing, retail, and technology, in particular, were seen as vulnerable to the ripple effects of these tariffs, as their supply chains and profit margins are heavily dependent on foreign trade.
Prospect of Rival Countries Joining Forces
One of the most significant risks posed by the new tariffs is the potential for a united response from nations. Japan, South Korea, and China, which have been subject to various tariffs by the US, are now under increasing pressure to form a coordinated strategy to push back against Trump’s protectionist policies.
Japan and South Korea, both major exporters to the US, have already expressed dissatisfaction with the tariffs, especially given their reliance on US markets for key industries such as electronics, automotive, and semiconductors. In recent years, both nations have sought to diversify their export markets, but the US remains a crucial partner.
China has retaliated with tariffs of 34% on April 4 2025, potentially sparking a global trade war. While the US-China trade war has seen fluctuating tensions, China has made clear its intentions to defend its economic interests. The Chinese government has warned that if the US continues to escalate its tariffs, Beijing may implement countermeasures, including further tariffs on US agricultural exports, rare earth metals, and technology products. The coordination of efforts between China and other countries could lead to a more unified global trade front against the US.
If such a global coalition were to form, it would represent a significant shift in the global economic balance. The collective power of these nations could have serious implications for the US economy, particularly if they take joint action to reduce their reliance on US markets or impose retaliatory tariffs that damage key US industries.
Damage to the US Economy
The new tariffs, while designed to protect US industries, could have far reaching negative consequences for the US economy. While the rhetoric surrounding these measures often centers on the benefits to domestic manufacturing, economists caution that the economic fallout could outweigh any short-term gains.
Higher Consumer Prices: One of the immediate effects of the tariffs will be an increase in the cost of goods for US consumers. Imported products will become more expensive and businesses that rely on foreign materials will pass on those costs to consumers in the form of higher prices. This is particularly concerning given the current inflationary pressures facing the US economy.
Disruption of Supply Chains: The tariffs will lead to further disruption of global supply chains. US companies that rely on components or raw materials from countries affected by the tariffs will face increased costs, potentially leading to delays in production or reduced profitability. Industries such as automotive, electronics, manufacturing and, pharmaceuticals are particularly vulnerable to such disruptions.
Economic Growth Slowdown: While the tariffs may result in some benefits for US manufacturers in the short term, they could also stifle economic growth. The uncertainty created by the new trade barriers could dampen business investment, as companies become more cautious about expansion plans in the face of higher costs and potential retaliatory actions from foreign governments.
Diminishing Appeal of the Dollar
The tariffs, coupled with growing concerns over the US economy, could have a significant impact on the global appeal of the US dollar. As other nations explore alternatives to the dollar in international trade, the dollar could face downward pressure.
The dollar, traditionally seen as the world’s reserve currency, benefits from its status as a safe haven during times of economic uncertainty. However, as global trade becomes more fractured due to tariffs and protectionist policies, countries may seek to reduce their dependence on the dollar by using other currencies in bilateral trade agreements. This could diminish the US’s economic leverage and increase the cost of borrowing for the US government and businesses.
Global Inflationary Pressures
Another consequence of the tariffs is the potential for increased inflation worldwide. As supply chains are disrupted and production costs rise, prices for goods and services are likely to increase. This inflationary pressure will not be confined to the US alone. Countries that rely on imported goods or have close trade ties with the US will also feel the sting of higher prices.
In particular, emerging markets which often depend on US imports and exports, could experience significant inflation. Vietnam, Cambodia, Bangladesh and, Sri Lanka along with many other countries may find their cost of living rising sharply due to the global ripple effects of US tariffs, exacerbating existing economic challenges and potentially sparking social unrest.
Interest Rates to Stay Higher for Longer
With inflationary pressures mounting, the Federal Reserve may be forced to keep interest rates elevated for longer than initially anticipated, even with Trump insisting on a rate cut. High tariffs could worsen inflation by raising the cost of goods, leading the Fed to maintain or even increase interest rates in an attempt to keep inflation in check.
Higher interest rates will make borrowing more expensive for businesses and consumers, in turn slowing economic growth. Mortgage rates, credit card debt, and business loans would all become more costly, which will dampen consumer spending and investment.
Supply Chain Issues for Companies
Maersk, a global shipping and logistics giant, has lost over 20% of its value since the tariff announcement.
The impact of the new tariffs will be especially severe for companies with global supply chains. Many US-based firms rely on foreign manufacturers for everything from raw materials to finished products. For instance, the electronics industry, which sources components from China and South Korea, could see delays and price hikes due to the tariffs.
This could lead to longer lead times for production, reducing the ability of US companies to meet demand. Businesses that were already struggling with supply chain disruptions caused by the COVID-19 pandemic could face even more significant challenges in the coming months.
To cope with the tariffs, many companies will be forced to look for alternative suppliers or adjust their pricing structures. This could further strain their bottom lines and hurt their competitive position in the global market.