Trump’s tariffs to cause pandemic-level fall in trade
President Donald Trump’s tariffs are set to knock trillions of dollars off world GDP, fresh forecasts suggest, as businesses reel from major disruption to global trading patterns.
A spate of new tariffs on goods ranging from European cars to Chinese toys will take the US’ effective tariff rate from 2.5 per cent to over 20 per cent, the highest level in decades, figures from Oxford Economics show.
This could lead to as much as a 2.3 per cent drop in global trade by 2028, sparked by a slump in US non-fuel imports.
The economists factored in “baseline” ten per cent tariffs on goods that could come into effect after Trump’s 90-day reprieve ends. Tariffs reaching over 100 per cent on Chinese goods accounted for nearly half of the estimate.
Trump has indicated he may be “flexible” on tariffs while maintaining high rates on China, Canada and Mexico as well as on specific products such as vehicles and steel.
But a further drop in global trade would be expected if Trump follows through with his tariffs.
The fall in trade would nearly match those seen during the Covid-19 pandemic in 2020 and the US recession of 1975.
Oxford Economics claimed their estimates were “conservative” given the unpredictability of retaliation and uncertainty regarding how consumers and firms respond to tariffs.
Its research also showed that a decline in global trade of five per cent tended to lead to a stagnation in global GDP growth, but low confidence among investors could push the world into a recession.
The Labour government hopes the UK can escape the worst effects of the tariffs.
Chancellor Rachel Reeves has said she is locked in trade deal negotiations with her counterpart treasury secretary Scott Bessent while Prime Minister Keir Starmer indicated the UK would not retaliate in the near term.
Trump partially U-turned on his sweeping tariffs after markets across the world tumbled and Treasury bond yields spiked, pushing up borrowing costs.
Researchers at Oxford Economics asked whether there may be any “winners” from higher tariffs and concluded that some sectors may see benefits.
“The same modelling exercise for US-EU tariffs of 25 per cent found that output in several US industries would increase, including metals, autos, and agrifood. Sales could also rise in some EU industries, such as other transport equipment,” the economists behind the report said.