London CNN —
When the United States raised tariffs on most imported goods nearly a century ago, the impact was profound. World trade plummeted, U.S. exports collapsed, other countries retaliated in kind, and the Great Depression, one of the worst economic downturns in world history, deepened. .
The tariffs in question are imposed under the Smoot-Hawley Tariff Act of 1930, but they will seem small compared to the tariffs Donald Trump has promised to impose if he wins a second term in the White House.
Along with other radical ideas such as mass deportations of illegal immigrants and blocking the independence of the Federal Reserve, President Trump has said he wants to impose tariffs of 10% to 20% on all goods imported into the United States. According to the government, this would be a significant increase from the current average of 2% for non-agricultural, so-called manufactured goods, half of which enters the United States duty-free.
President Trump is proposing even harsher 60% tariffs on imports from China.
“For me, the most beautiful word in the dictionary is ‘tariff’. It’s my favorite word,” he said in an interview with Bloomberg at the Economic Club of Chicago last week.
Most economists believe that tariffs act as taxes on imported goods, harming consumers within the country imposing the tariff and businesses that rely on imported raw materials and intermediate goods to make finished products. do not share President Trump’s fondness for tariffs.
Many economists believe that President Trump’s planned tariffs will hurt global economic growth and that if other countries impose higher tariffs on U.S. imports in response, they will increase inflation both in the U.S. and abroad. I’m warning you.
Researchers at the Washington, D.C.-based Peterson Institute for International Economics wrote in a recent memo that imposing higher tariffs would “antagonize U.S. allies and partners, spark a global trade war, and create global It would undermine economic welfare and undermine national security.”
Predictions for the damage from President Trump’s new tariffs vary in size and scope, depending on the level of the levy and retaliatory tariffs from America’s trading partners, but forecasters’ predictions are overwhelmingly negative.
For example, UBS analysts believe that imposing a 60% tariff on imports from China and a 10% tariff on products from other countries would likely halt tariff increases in 2026. It is estimated that this would reduce global economic growth by 1 percentage point. Fully implemented. Based on current trends, that would reduce growth by almost a third.
Corporate profits fell by an average of 6%, and global stock indexes also fell, with European, Chinese and other emerging market stocks in particular falling, UBS said. That could eat into people’s pensions and other investment savings.
The International Monetary Fund (IMF) also predicts that tariff increases around the world will hit global gross domestic product (GDP), according to its latest World Economic Outlook.
Europe’s economy will be hit hard. According to ABN, if the US raises tariffs on all items to 10%, the damage to GDP in the euro area (20 countries that use the euro) will be due to the energy crisis caused by Russia’s invasion of Ukraine in 2022. Amuro will probably be on the same level. A subsequent recession was narrowly avoided, with Dutch banks predicting the economy will stagnate in 2026 due to tariffs.
“Assuming[Trump]implements his proposals, no one will come out unscathed,” said Maurice Obstfeld, a senior fellow at the Peterson Institute and former chief economist at the IMF.
Trump, who describes himself as a hard-nosed businessman, boasted in Chicago last week that he had gotten tough on allies including Japan, France and South Korea through tariffs, or simply the threat of tariffs, during his first term as president.
If he returns to the White House, his winner-take-all approach to trade relations will further undermine the principles of open trade and competition that have underpinned global economic growth for decades.
Over the past four decades, global trade as a share of GDP has halved, inflation-adjusted per capita income has doubled, and more than 1 billion people have been lifted out of extreme poverty, IMF Director-General Kristalina Georgieva said earlier this year. I wrote this. .
“It is true that not everyone benefits from trade, which is why we must work harder to ensure that the benefits are distributed equitably. But closing our economy That’s wrong,” she said.
The rise of protectionism around the world means open trade is already under threat and the ability of its champion, the World Trade Organization, to resolve international trade disputes is severely constrained. are.
Obstfeld told CNN that President Trump’s approach would lead to a “global trading system that is a patchwork of bilateral agreements.” “How that system will work is anyone’s guess, but it is likely that trade will decline, profits from trade will decline, and trade relations between countries will remain more volatile than in the past. It can be inferred that
Petros Mavroidis, a professor at Columbia University School of Law and a longtime legal adviser to the WTO, predicts an even darker outcome.
“Given the history of the world, I think it’s unrealistic to think that you can have fragmented trade and still have world peace,” he told CNN. “The world has to be connected, both economically and non-economically. If you’re not connected, you pay the price.”
In addition to imposing retaliatory tariffs on U.S. imports, other countries may also impose tariffs on imports from other countries to protect their markets from a flood of goods that would otherwise have gone to the United States. expensive.
After President Trump announced tariffs on steel and aluminum imports in March 2018, the European Union imposed its own tariffs on certain steel products four months later, citing the risk of increased imports. It also hit back directly at its transatlantic allies by imposing tariffs on more than $3 billion worth of U.S. goods, including motorcycles, denim and whiskey.
Most recently, the EU raised tariffs on electric vehicles from China, and analysts say the move comes after US President Joe Biden imposed a 100% tariff on Chinese-made EVs. It is analyzed that part of the purpose was to prevent imports.
“We could end up in a spiral of trade measures where the U.S. starts and other countries expand,” said Andre Sapir, a senior fellow at the Bruegel think tank in Brussels.
In addition to the tariffs, economists are troubled by Mr. Trump’s desire to tighten his control over the Federal Reserve.
He declined to answer a direct question from Bloomberg about whether he would fire Fed Chairman Jerome Powell, whose term expires in May 2026, but said the reason was that Fed Chairman Jerome Powell is “keeping interest rates too high.” And I once threatened to do so.
“I think I have the right to say, ‘I think it should go up a little bit or go down a little bit,'” Trump said in Chicago. “I don’t think I should be allowed to dictate, but I do think I have the right to comment on whether interest rates should go up or down.”
Any attempt to undermine the Fed’s independence, which is sacred to investors, would disrupt global financial markets and destabilize the dollar, the world’s main currency for trade bills and foreign reserves. Dew.
That’s because investors question whether a compromised Fed can effectively combat high inflation. High inflation generally leads to currency depreciation and, if left unchecked, can have a negative impact on economic growth.
“Bringing the Fed under some sort of political control would change the rules of global finance in a big way,” Obstfeld said, adding that “there is no good alternative” to the dollar, and that tinkering with the dollar is “unfortunate.” It’s a bad plan,” he added. ”
Edward Alden, a senior fellow at the Washington, D.C.-based foreign policy think tank, the Council on Foreign Relations, said President Trump is unlikely to disrupt the Fed’s independence given the risks such a move would pose to the U.S. economy. I’m thinking.
Still, his actions during his second presidential term meant that “there was an active group of more traditional Republicans who worked very hard to thwart President Trump’s insane actions.” He said he is likely to be more radical than his first term in the House. CNN.
“None of those people are going to serve in a second administration.” He also noted that the possibility of re-election won’t constrain him, since U.S. presidents can only serve two terms. did.
Mr. Alden added that Mr. Trump “will be less constrained and will have a better sense of how to get the bureaucracy to get his way.” “What we see in Trump 2 is much more extreme than what we saw in Trump 1.”
