What the US tariff hikes mean for the global economy
We expect GDP growth in both the US and world economy to slow sharply due to the tariff hikes, but we don’t anticipate recessions in either.
Tariff hikes will usher in a period where global trade falls as a share of GDP.
Following the ‘Liberation Day’ announcement, we have updated our March baseline to incorporate the changes in tariffs. Based on current trade shares, the average effective tariff rate on US imports will climb to about 25%, which is around levels seen during the great depression era. We believe the tariff hikes will usher in a period where global trade falls as a share of GDP.
Fill out the form to download the full report and uncover answers to these questions:
- What impact will US reciprocal tariffs have on global trade flows?
- Which economies will be worst affected by the collapse in global trade?
- What are the likely consequences for domestic demand and employment in the US, following the unprecedented tariff shock?
- How will increased tariffs influence the economic prospects of China, the Eurozone and other economies?
- Will the new tariffs boost inflation in the US and globally?
- How will the US dollar fare?
- To what extent has uncertainty eased in the wake of Liberation Day?
- How do we expect policymakers, including the Feb, ECB and BoE, to respond?
Our baseline tariff assumptions
Our baseline forecasts assume that the US administration will backtrack on the reciprocal tariff element of the Liberation Day announcements, leaving the rest of the world facing an additional 10% tariff. Meanwhile, we assume China’s tariff will remain at around 150% for the duration of our forecasts. Meanwhile we still assume the 25% tariffs on Canadian and Mexican goods not covered under the USMCA deal will apply. However, we expect the US, Canada, and Mexico to renegotiate the USMCA trade deal around the middle of next year.
