The FINANCIAL — The newly announced tariffs by the US administration on imports from nearly all countries could have severe negative economic consequences—most notably for the United States itself. Other countries are significantly less affected, with Germany and the EU only moderately impacted by comparison.
Simulations using the Kiel Institute’s KITE model show that Donald Trump’s trade policy primarily harms the US economy. The proposed tariffs could reduce US economic output by nearly 1.7 percent within a year, push up prices by more than 7 percent, and lead to an export decline of almost 20 percent.
If affected countries retaliate, price effects in the US would likely be somewhat smaller, but the decline in exports would be even larger. This means the economic consequences would be far more dramatic for the US than for nearly any other country.
The EU can expect a decline in output of just over 0.2 percent and Germany by just over 0.3 percent. Global economic output would likely fall by around 0.8 percent. German and EU exports are projected to decline by around 0.6 percent. Global trade volumes could shrink by nearly 6 percent.
Prices in Germany and the EU are expected to decline by 1 percent and 0.9 percent, respectively. One reason is that exports originally destined for the US are being redirected to the European market, increasing competition there. Globally, prices are projected to rise by 0.7 percent.
“The tariffs will be a stress test for some German and European sectors and companies for whom the US is an important market. But the newly announced tariffs affect all countries, to varying degrees, and the EU has come through relatively well,” says Julian Hinz, Research Director for Trade Policy at the Kiel Institute. “Prices are rising significantly in the US, but German and European firms are not worse off than other exporters to the US on average.”
The dramatic price development in the US is due to the fact that tariffs raise not only the prices of imported final goods, but also of intermediate inputs, making domestic production more expensive. At the same time, reduced competition allows domestic producers to raise prices as well. This amplifies inflationary pressure and reduces the purchasing power of US households.
European economies are significantly less affected than the global average. This is partly due to their lower dependence on the US market and partly because the EU is not specifically targeted compared to other regions.
Hinz adds: “We are witnessing the US turning away from free trade. But there are around 200 other countries still trading under the existing rules.”
The new tariffs include a 10% universal tariff on all imports, a 20% tariff on Chinese goods (building on prior rates), and 25% tariffs on imports from Canada and Mexico, with potential escalation depending on trade negotiations. These build on earlier policies but are broader in scope.
Short-Term Impacts
Consumer Price Increases
The Peterson Institute for International Economics (PIIE) estimates that a 10% universal tariff, combined with higher rates on specific countries, could raise U.S. consumer prices by 1.1% to 1.8% within a year. A November 2024 PIIE study by Maurice Obstfeld and colleagues models that tariffs on Canada and Mexico alone could add $1,700 annually to the average household’s costs due to higher prices for oil, auto parts, and food.
The Tax Foundation (December 2024) calculates that fully implemented tariffs would reduce U.S. after-tax incomes by 0.8%, translating to roughly $625 per household in increased costs, assuming partial pass-through to consumers.
Inflationary Effects
Expert Commentary: Janet Yellen, U.S. Treasury Secretary (as cited in Bloomberg, January 2025), warned that broad tariffs risk reigniting inflation, echoing Federal Reserve models from 2024 suggesting a 0.5% to 1% bump in core inflation over two years. Fed Chair Jerome Powell has noted this could complicate monetary policy, potentially requiring higher interest rates.
A National Bureau of Economic Research (NBER) working paper (Autor et al., February 2025) finds that Trump’s first-term tariffs raised consumer prices by 0.4% with only modest producer price offsets, a trend likely to amplify with broader tariffs.
Supply Chain Disruptions
Expert Analysis: Chad Bown of PIIE (March 2025 brief) highlights that 25% tariffs on Canada and Mexico threaten the $2.7 trillion North American trade bloc. The auto sector, with parts crossing borders multiple times, could see production costs rise by 5-10%, per a Center for Automotive Research report (January 2025).
Research: A Moody’s Analytics simulation (February 2025) predicts a 2-3% increase in manufacturing input costs, disproportionately hitting small businesses reliant on imported intermediates.
Government Revenue
Research: The Congressional Budget Office (CBO) projects (March 2025) that tariffs could generate $200 billion annually in revenue initially, though this declines as imports drop. The Tax Policy Center estimates a cumulative $1.2 trillion over a decade, assuming no major trade war escalation.
Medium- to Long-Term Impacts
GDP Growth
Oxford Economics (January 2025 forecast) projects a 0.7% GDP reduction by 2027 under current tariffs, rising to 1.9% with full retaliation. Goldman Sachs (February 2025) estimates a more modest 0.3% hit, assuming partial exemptions and negotiations.
A joint study by the University of Chicago and the Federal Reserve (Krueger et al., December 2024) models a 1.5% GDP decline over five years if 10% universal tariffs persist, with a 4% drop in a high-retaliation scenario, driven by export losses and investment declines.
Employment and Manufacturing
Economist Alan Blinder (Wall Street Journal, February 2025) argues that while tariffs may protect some jobs in steel or aluminum (e.g., 10,000 jobs gained from 2018 tariffs), downstream losses in industries like construction and autos (estimated 50,000-100,000 jobs) outweigh gains.
The Trade Partnership (March 2025) finds a net job loss of 300,000 over three years under the new tariffs, with gains in protected sectors offset by losses elsewhere due to higher costs and reduced competitiveness.
Trade Deficit
Expert Analysis: Kyle Handley (MIT, March 2025 paper) notes that tariffs are unlikely to shrink the trade deficit, as it’s driven by macroeconomic factors like savings rates and dollar strength. The dollar’s 2-3% appreciation (per IMF estimates, January 2025) could widen the deficit by making exports pricier.
Research: A 2024 update to a PIIE study (Furman and Russ) confirms that Trump’s first-term tariffs reduced imports but also exports, leaving the deficit largely unchanged—a pattern likely to repeat.
Retaliation and Global Effects
Expert Analysis: The European Commission (February 2025) and Canadian government (March 2025) have outlined retaliatory tariffs targeting U.S. exports like soybeans ($15 billion market), whiskey, and tech goods. China’s Ministry of Commerce signaled counter-tariffs on $20 billion in U.S. goods (Bloomberg, January 2025).
Research: The International Monetary Fund (IMF) warns in its 2025 World Economic Outlook that a 10% global tariff escalation could cut U.S. GDP by 1.3% and global GDP by 0.8%, with retaliation amplifying losses.
Sector-Specific Impacts
Energy: Moody’s (February 2025) estimates a 5-10 cent per gallon gas price increase from Canadian oil tariffs.
Agriculture: The American Farm Bureau (March 2025) projects a $10 billion hit to U.S. farm exports if Mexico and Canada retaliate fully.
Tech: A Semiconductor Industry Association report (January 2025) warns of a 15% cost increase for chips reliant on Asian inputs.
Expert Consensus
Brookings Institution (March 2025): “Tariffs will raise costs, slow growth, and invite retaliation, with limited upside for manufacturing.”
Cato Institute (February 2025): “Historical data shows tariffs fail to deliver promised economic benefits while imposing clear costs.”
Council on Foreign Relations (CFR, January 2025): “The risk of a trade war outweighs speculative gains in domestic production.”
Revenue gains are real but insufficient to offset economic drag, especially with retaliation. While the administration touts long-term strategic benefits, the data suggests short-term pain and uncertain long-term rewards, with outcomes hinging on policy execution and global responses.
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