At first, U.S. President Donald Trump’s announcement on April 2, 2025, seemed like a late April Fools’ joke. However, it was real. And true to his style, it was typical of his controversial approach. This decision marked a dark day in global trade, which has seen steady progress since 1947 despite occasional setbacks. Trump's decision indicates a major shift away from the global trade liberalization that has defined the international economic system for decades, as the U.S. veers toward more protectionist policies. This move will pose serious long-term challenges to the global economy.
Trump’s announcement involved imposing new tariffs on all countries, following his March implementation of tariffs on Mexico, Canada and China. Under the new policy, all countries’ exports to the U.S. are now subject to at least a 10% "baseline" tariff. Some countries, such as the U.K., Türkiye, Brazil and Australia, are only subject to this baseline rate. However, there are about 60 nations deemed “offenders” by the U.S. government because they apply tariffs on U.S. products. These include China (54%), Vietnam (46%), Cambodia (49%) and Thailand (46%). Even the European Union (20%) is included in this list. Alarmingly, U.S. allies in the Far East, like Japan (24%) and Taiwan (32%), are also considered offenders. Furthermore, a 25% duty has been placed on all car exports to the U.S., regardless of their country of origin. These new "baseline" tariffs entered into force on Saturday, while the so-called reciprocal levies took effect on Wednesday, including a massive 104% levy on China.
Despite the U.S. administration's attempt to sound sophisticated with an unclear arithmetic formula, the immediate result of the announcement was a significant drop in the New York Stock Exchange. This reflected the realization among U.S. investors and businesses that this policy could harm the U.S. economy. As usual, Trump and his team dismissed the market’s reaction.
JPMorgan has estimated a 60% chance of a recession in the U.S., with inflation almost certainly set to rise. This could lead to a period of stagflation, a situation where inflation and unemployment rise simultaneously. While protectionist policies may initially appear to protect domestic producers, they can also result in higher prices and inefficiencies in the global market.
In the short term, the new tariffs will likely cause higher costs for U.S. consumers and businesses. The increased cost of imports will raise prices across various sectors, including electronics, food and energy. Businesses that rely on low-cost imports will struggle to remain competitive, potentially leading to job cuts or slower wage growth.
Can American businesses replace the gap left by reduced imports? Many U.S. manufacturers depend on affordable raw materials from abroad, and shifting away from international supply chains will be neither quick nor painless. The potential for higher inflation and slower economic growth may ultimately outweigh any short-term benefits from reducing imports.
Trump’s decision to impose tariffs in 2025 will affect both the U.S. and its trading partners. On March 4, 2025, Trump introduced major tariffs on imports from Canada, Mexico and China. His April escalation further intensified global trade tensions, particularly with countries that already have longstanding trade imbalances with the U.S. The new tariffs are expected to exert additional inflationary pressure on the U.S. economy, which has been struggling with inflation for the past few years. As I previously noted in an op-ed for Daily Sabah, the higher tariffs on imported goods will raise prices for American consumers, affecting everything from electronics to food to energy.
For U.S. businesses that rely on imports from Canada, Mexico and China, higher production costs will be passed on to consumers, raising product prices. This will not only hurt domestic markets but also make U.S. exports less competitive in the global market. Rising production costs could lead to job losses or stagnating wage growth, and overall U.S. economic growth is expected to slow. While Trump claims that the tariffs are meant to protect American workers, the inflationary pressures they create may outweigh any potential benefits from reduced imports.
Despite the apparent irrationality of Trump’s policies, these decisions will not only affect U.S. foreign trade relations but also have widespread consequences for the global economy and international politics. With the new and broader tariffs affecting all countries, the global economy will likely bear a greater burden than the U.S. itself. The IMF’s chief economist, Kristalina Georgieva, has stated that the IMF is still assessing the macroeconomic implications of these tariffs, which represent a significant risk to the global economic outlook.
Canada and Mexico, two of the U.S.’ largest trading partners, are heavily dependent on exports to the U.S. New tariffs could lead to job losses in industries that rely on U.S. demand, particularly in manufacturing and agriculture. While these countries may try to find alternative markets, U.S. consumers are a vital part of their economies, and replacing that revenue stream could take years – or may not be feasible at all.
China, already deeply affected by the trade war, will see its manufacturing exports to the U.S. decline even further. The Chinese presidency now maintains a very different position on its relations with the U.S.
The U.S. has long been one of China’s largest customers, particularly for technology products. The new tariffs are likely to further harm China’s already struggling manufacturing sector, potentially resulting in job losses and slower growth. However, Chinese firms may seek to make up for lost U.S. market share by targeting other markets with aggressive price cuts, putting pressure on exporters from other emerging economies and leading to widespread job losses.
The U.S. administration has given no room for countries to retreat from retaliation. Many nations, especially large economies or those with significant exports to the U.S., are expected to respond with countermeasures. Only smaller nations, intimidated by U.S. threats, may hold back. Unlike before, China is not apologetic and accommodating to American pressure. China retaliated immediately and severely by raising duties on American goods to a staggering 84%. This sent shock waves to American and global financial markets and received immediate and partly illogical reactions from Washington. China is also taking measures to shut down Chinese investment in dollar assets.
Perhaps more concerning is how the Trump administration has alienated close allies like Japan and Taiwan. This is likely to result in a reshuffling of political alliances around the world, with China positioning itself as a more strategic global player. As a result, the U.S. could find itself increasingly isolated in the world’s economic and political landscape.
Instead of building strong ties with countries such as Russia, Japan, Türkiye, Taiwan and the EU to counterbalance China, the Trump administration is severing ties with nearly everyone. The approach of the current U.S. administration is difficult to understand and raises significant questions about the future direction of U.S. foreign policy.
