On 2 April 2025, U.S. President Donald Trump announced sweeping tariffs on U.S. trade partners with a 10% baseline tariff and higher levies on partners the administration believes have treated the U.S. “unfairly” in their trade policies. The tariffs range from the 10% baseline to 49% and go into effect on 5 April 2025.
The president said the administration assessed the trade barriers presented by other countries through tactics like tariffs, value-added taxes (VATs), and sanctions, and is imposing a 50% tariff based on that number. The president presented a chart with the following data:
The tariffs are in addition to the 25% tariff on foreign-made automobiles, which go into effect at midnight on 3 April 2025.
Bracing for Impact
Since President Trump first floated the idea of broad tariffs in February 2025, market volatility has increased amid mounting recession fears, with the S&P 500 experiencing its worst month since 2022 in March 2025. As economists have continuously said throughout the process, “markets hate uncertainty.” The president’s announcement came after the stock market closed on Wednesday evening, although markets closed slightly higher before the president’s announcement. The U.S. stock market’s reaction won’t be known until 8 am EST on 3 April when the New York Stock Exchange opens. The Tokyo Stock Exchange opens at 7 pm EST and the London Stock Exchange at 2 am EST, which will be an indication of the impact of the tariffs on the world stage.
Prior to 2 April’s announcement, the Yale Budget Lab published an assessment of the potential impacts of 20% tariffs across the board to preemptively measure what the impact of the tariffs will bring. Key takeaways of the report include:
- Considering only a 20% tariff on trade partners, consumer prices will rise 2.1%. Factoring in 1:1 retaliatory tariff from other countries, researchers expect a 2.6% rise in prices, mounting to a loss of approximately $3,400-$4,200 per household (considering value of the dollar in 2024).
- Tariffs are expected to shrink U.S. GDP growth in both the short and long term. Researchers expect GDP to sink -.09 percentage point (pp) in 2025 and -.1pp in 2026 without retaliation, and -.1pp in 2025 and -.2 pp in 2026 with retaliation. After 2026, markets are expected to stabilize as supply chains are resourced, but overall GDP projections remain -.03-.06% lower, amounting to a permanently smaller U.S. economy by $90-180 billion dollars annually.
- Global GDP output is expected to shrink -0.1% under no-retaliation scenarios and -0.25% under full-retaliation scenarios. Some countries will be hit harder than others, with Canada potentially seeing as much of a -2.06pp change with full retaliation tariffs, and China seeing a -.02pp change at most with full retaliation tariffs.
- The report’s assertions were based on a 20% across-the-board tariff scenario. The actual outcomes will differ as the announced tariffs and their longevity were not determined at the time of publication.
Actually ‘Liberating?’
The Trump administration is framing the wide-spread tariffs as a good thing for American manufacturing and business, going so far as to designate 2 April 2025 “Liberation Day” in celebration of alleged reshoring of production to the U.S. But economists question if these tariffs truly will be “liberating” for U.S. businesses and the American economy.
“It’s not going to help,” Kara Reynolds, professor and department chair of economics at American University told 3E. “I’ll just go right out and say it; it’s not going to help U.S. firms.”
Reynolds explained that while tariffs can help shield domestic producers from foreign competition, the globalized economy of today is very different from the global economy of the 1930s and ‘40s.
“We import a lot of our intermediate inputs. As you put the tariffs on those products that U.S. firms are using and their production process, it’s raising their costs, which they can either pass on to U.S. consumers or lower their profits,” Reynolds said. “That [is] combined with the fact that you are almost sure to see retaliatory tariffs from our trading partners, which will also hurt U.S. firms.”
Additionally, the U.S. does not have enough labor, resources, infrastructure, or industry to completely localize the supply chain like the administration seems to be hoping for, at least immediately. Reynolds said it will require significant investment to reshore production to produce everything the U.S. needs, and that it is not always cost-effective, or even possible, to produce everything at home.
“The whole world has built up an economy over the last 40 years, let’s say, on global value chains where they think and make very strategic decisions about ‘Where’s the most cost-effective place to produce this component,’ and ‘How can I build that value chain?’” Reynolds said.
Ultimately, shifting policies have made it difficult for businesses to plan ahead. Many delayed mitigation strategies or economic forecasting due to uncertainty around how and when tariffs would be implemented.
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