Trump's tariffs are 'a game changer,' not only for U.S. econ

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Dow Jones NewsApr 3, 1:11 AM UTC
MW Trump's tariffs are 'a game changer,' not only for U.S. economy but for the world

By Greg Robb

 

Highest tariff rate since 1910 may cause many countries to enter recession, one economist says

 

President Donald Trump's new tariff plan is a tsunami that will slam into the global economy and have repercussions that are hard to quantify, economists said Wednesday.

 

"This is a game changer, not only for the U.S. economy, but for the global economy. Many countries will likely end up in a recession," said Olu Sonola, head of U.S. economic research at Fitch Ratings.

 

"You can throw most forecasts out the door, if this tariff rate stays on for an extended period of time," he added, in a note to clients late Wednesday.

 

In general terms, Canada and Mexico have gotten off lightly, while countries in Asia, particularly China and Vietnam, have been hit hardest. The European Union and Japan sit somewhere in the middle, said Neil Shearing, group chief economist at Capital Economics.

 

Also read: Trump's tariffs amount to 'worse than worst-case scenario' as investors brace for stock-market beatdown

 

Back-of-the-envelope calculations from economists suggest that the average U.S. tariff rate will be around 22%, last seen in 1910 and higher than the infamous Smoot-Hawley Act of 1930.

 

"Trump has basically declared war on the global economy," said Maurice Obstfeld, former chief economist at the International Monetary Fund. "It will be a globally destructive one and certainly will wash back on the U.S. economy. By differentiating the tariff rates across trade partners, he is inviting chaos in world trade as countries trans-ship goods to obtain lower duty rates."

 

Trump wants the tariffs to fund income-tax cuts and incentivise manufacturing reshoring. But the measures mean "a painful transition period ahead," said James Knightly, chief international economist at ING.

 

He estimated that the tariffs will add $1,350 of extra annual costs for every American, with price levels rising by around 2.5%.

 

That may just be the start. There will be upward pressure on some service prices as well, he added.

 

Those price increases will leave less disposable spending power in consumers' pockets, weighing on economic growth and hiring for the rest of 2025, said Bill Adams, chief economist for Comerica Bank.

 

This comes at a time when economists are cutting their growth forecasts. The Atlanta Fed's GDPNow forecasts a negative-1.4% annual growth rate in the January-March quarter.

 

The second quarter will also be challenging.

 

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said he thinks there's enough wiggle room in the tariff plan to help the U.S. economy avoid a recession.

 

"The speed with which tariffs can be removed bolsters that case for thinking that a slowdown, rather than a recession, lies ahead," Tombs said.

 

Shearing of Capitol Economics said that the impact of the tariff plan on the U.S. economy would depend on how the additional tax revenue would be spent.

 

"If it is given back to consumers via other tax cuts, then economic growth may not suffer too badly. If it is used to pay down the budget deficit, then this amounts to a fiscal tightening of more than 2%, which means the economy would be lucky to avoid recession," he said.

 

Stephen Miran, chair of Trump's Council of Economic Advisers, said that there would be roughly $500 billion in additional revenue.

 

The revenue can be used pay for the extension of the Trump tax cuts "and there's even enough to pay for further tax relief that the president has promised, and potentially more," Miran said in an interview on the Fox Business Network.

 

Miran agreed that there would be "short-term bumps" for the economy, but that the president was focused on a long-term transition of the economy.

 

-Greg Robb

 

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04-02-25 2111ET

 
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