The latest round ofU.S. trade tariffsunveiled on Wednesday will sap yet more vigour from a world economy barely recovered from the post-pandemic inflation surge, weighed down by record debt and unnerved by geopolitical strife.
Depending on how President Donald Trump and leaders of other nations proceed now, this may also go down as a turning point for a globalised system that had taken for granted the strength and reliability of America, its largest component, until now.
"Trump's tariffs carry the risk of destroying the global free trade order the United States has spearheaded since the Second World War," said Takahide Kiuchi, executive economist at Nomura Research Institute.
But in coming months, it will be the plain and simple price-hiking - and therefore demand-dampening - effects of new levies applied to thousands of goods bought and sold by consumers and businesses across the planet that will prevail.
"I see it as a drift of the U.S. and global economy towards worse performance, more uncertainty, and possibly heading towards something we could call a global recession," said Antonio Fatas, macroeconomist at the INSEAD business school in France.
Speaking in the White House Rose Garden, Trump said he would impose a 10% baseline tariff on all imports and held up a chart showing higher duties on some of the country's biggest trading partners, including 34% on China and 20% on the European Union.
A 25% auto and auto parts tariff was confirmed earlier. Trump said the tariffs would return strategically vital manufacturing capabilities to the United States.
Under the new global levies imposed by Trump, the U.S. tariff rate on all imports jumped to 22% - a rate last seen around 1910 - from just 2.5% in 2024, said Olu Sonola, head of U.S. economic research at Fitch Ratings.
"This is a game changer, not only for the U.S. economy but for the global economy," Sonola said. "Many countries will likely end up in a recession."
IMF Managing Director Kristalina Georgieva told a Reuters event this week she did not see a global recession for now. She added the Fund expected shortly to make a small downward "correction" to its 2025 forecast of 3.3% global growth.
But the impact on national economies is set to diverge widely, given the spectrum of tariffs ranging from 10% for Britain to 49% for Cambodia.
If the result is a wider trade war, that would have even larger repercussions for producers like China, which would be left hunting for new markets in the face of weak domestic consumption.
"Asian economies will be hit harder than most by U.S. reciprocal tariffs," said Marcel Thieliant, head of Asia-Pacific at Capital Economics. "Not only do Asian economies face higher tariffs than many others, they are also more dependent on U.S. goods demand than most."
If the tariffs push the U.S. itself towards recession, that will weigh heavily on developing countries whose fortunes are closely tied to those of the world's largest economy.
Stocks dived and investors scrambled to the safety of bonds, gold and the yen on Thursday on heightened economic worries.
Trump trade tariff expected to have wide ranging global impact
AN 'INVERTED WORLD'
The knock-on effects for central banks and governments are also potentially large.
An unravelling of supply chains that for years kept a lid on prices for consumers could lead to a world in which inflation tends to run "hotter" than the 2%, which central bankers currently agree is a manageable target.
That would complicate decisions for the Bank of Japan, which may face pressure to combat inflation with more rate hikes just as its major counterparts eye cuts, and as its export sector takes a hit from U.S. duties.
But there is little countries can do beyond mitigating the economic hit and asking Washington for exemptions. Auto exporters Japan, hit with a 24% reciprocal tariff rate, and South Korea, which was imposed a 25% rate, have signalled plans to take emergency measures to support affected businesses.
Despite being U.S. allies, both countries were singled out by Trump as the worst offenders of unfair trade practices.
Japan's trade minister warned the U.S. levies could violate World Trade Organization (WTO) rules, but said only that Tokyo will consider "various options" on how to respond. "Given its strong national security ties with the United States, Japan has no cards to play to win concessions," said Nomura's Kiuchi.
Australia's prime minister criticised the tariffs as not "the act of a friend" but ruled out reciprocal measures.
Weak economic output will leave some governments struggling even more to pay down the world's record $318 trillion debt load and find money for budget priorities such as defence, climate action, and welfare.
And what if the tariffs do not bring about Trump's aim of private sector investment in domestic U.S. manufacturing, given the domestic labour shortages already facing a country with close to full employment?
Some see him seeking other ways to remove the U.S. global trade deficit that riles him so much - for example, by demanding others join in a re-balancing of foreign exchange rates to benefit U.S. exporters.
"We are going to continue to see him putting out there potentially more risky ways of dealing with the continuous strength of the dollar," said Freya Beamish, chief economist at investment strategy firm TS Lombard.
Such moves could jeopardise the privileged position of the dollar as the world reserve currency of choice - an outcome few predict, if only because there are no real alternatives to the dollar.
Nonetheless, European Central Bank President Christine Lagarde on Wednesday told an event in Ireland that Europe needed to act now and accelerate economic reforms to compete in what she called an "inverted world".
"Everyone benefited from a hegemon, the United States, that was committed to a multilateral, rules-based order," she said of the post-Cold War era of low inflation and growing trade in an open global economy.
"Today we must contend with closure, fragmentation, and uncertainty."
Rising spreads are a sign of concern
Writing by Mark John; additional reporting by Balazs Koranyi in Frankfurt; Karin Strohecker in London; Marius Zaharia in Beijing; Leika Kihara in Tokyo; Graphics by Marc Jones in London; Editing by Anna Driver, Lincoln Feast and Sam Holmes
The sweeping new tariffs announced Wednesday by U.S. President Donald Trump were met initially with measured reactions from key trading partners, highlighting the lack of appetite for a full-fledged trade war.
Trump presented the import taxes, which he calls “reciprocal tariffs” and range from 10% to 49%, in the simplest terms: the U.S. would do to its trading partners what he said they had been doing to the U.S. for decades.
“Taxpayers have been ripped off for more than 50 years,” he said. “But it is not going to happen anymore.”
The president promised that “Jobs and factories will come roaring back into our country.” He framed it not just as an economic issue, but a question of national security that threatens “our very way of life.”
Financial markets were jolted, with U.S. stock futures down by as much as 3% early Thursday and Tokyo’s market leading losses in Asia. Oil prices sank more than $2 a barrel and the price of bitcoin dropped 4.4%.
‘Nobody wants a trade war’
Shortly after Trump’s announcement, the British government said the United States remains the U.K.’s “closest ally.”
Business Secretary Jonathan Reynolds said the U.K. hoped to strike a trade deal to “mitigate the impact” of the 10% tariffs on British goods announced by Trump.
“Nobody wants a trade war, and our intention remains to secure a deal,” said Reynolds. “But nothing is off the table and the government will do everything necessary to defend the U.K.’s national interest.”
Italy’s conservative Premier Giorgia Meloni described the new 20% tariffs against the European Union as “wrong,” saying they benefit neither side.
“We will do everything we can to work towards an agreement with the United States, to avoid a trade war that would inevitably weaken the West in favor of other global players,” Meloni said in a Facebook post.
Brazil’s government said it was considering taking the case to the World Trade Organization. And later, in a rare display of unity, Brazil’s Congress unanimously passed a reciprocity bill to allow its government to retaliate against any country or trade bloc that imposes tariffs on Brazilian goods.
‘Minimize damage’
Asian countries that are among the biggest exporters to the U.S. pledged to take swift action to support automakers and other businesses likely to be affected.
South Korea’s acting leader, Prime Minister Han Duck-soo, told officials to work with business groups to analyze the potential impact of the new 25% tariff to “minimize damage,” the trade ministry said.
China’s commerce ministry said Beijing would “resolutely take countermeasures to safeguard its own rights and interests,” without saying exactly what it might do. China has reacted to earlier rounds of higher tariffs by imposing higher duties on U.S. exports of farm products, while limiting exports of strategically important minerals used for high-tech industries such as electric vehicles.
“China urges the United States to immediately cancel its unilateral tariff measures and properly resolve differences with its trading partners through equal dialogue,” it said.
‘No basis in logic’
Some countries took issue with the White House’s calculations.
Australian Prime Minister Anthony Albanese said the U.S. tariffs imposed on his country were totally unwarranted, but Australia will not retaliate.
“President Trump referred to reciprocal tariffs. A reciprocal tariff would be zero, not 10%,” said Albanese. The U.S. and Australia have a free trade agreement, and the U.S. has a $2-to-$1 trade surplus with Australia. “This is not the act of a friend.”
Trump said the United States bought $3 billion of Australian beef last year, but Australia would not accept U.S. beef imports. Albanese said the ban on raw U.S. beef was for biosecurity reasons.
The 29% tariff imposed on the tiny South Pacific outpost of Norfolk Island came as a shock. The Australian territory has a population of around 2,000 people,e and the economy revolves around tourism.
“To my knowledge, we do not export anything to the United States,” Norfolk Island Administrator George Plant, the Australian government’s representative on the island, told the AP Thursday. “We don’t charge tariffs on anything. I can’t think of any non-tariff barriers that would be in place either, so we’re scratching our heads here.”
New Zealand also took issue with Trump’s tariff logic.
“We don’t have a 20% tariff rate,” said trade minister Todd McClay, adding that New Zealand was “a very low tariff regime” and the correct figure was below the 10% baseline rate applied by the U.S. to all countries.
“We won’t be looking to retaliate. That would put up prices on New Zealand consumers and it would be inflationary,” he said.
Spared for the moment from the latest round of tariffs were Mexico and Canada, for goods already qualified under their free trade agreement with the United States. Yet, previously announced 25% tariffs on auto imports were scheduled to take effect at midnight.
Mexico President Claudia Sheinbaum said Wednesday she would wait to take action on Thursday when it was clear how Trump’s announcement would affect Mexico.
“It’s not a question of if you impose tariffs on me, I’m going to impose tariffs on you,” she said Wednesday morning. “Our interest is in strengthening the Mexican economy.”
Canada had imposed retaliatory tariffs in response to the 25% tariffs that Trump tied to the trafficking of fentanyl. The European Union, in response to the steel and aluminum tariffs, imposed taxes on 26 billion euros’ worth ($28 billion) of U.S. goods, including bourbon, prompting Trump to threaten a 200% tariff on European alcohol.
Little to gain
As Trump read the list of countries that would be targeted Wednesday, he repeatedly said he didn’t blame them for the trade barriers they imposed to protect their own nations’ businesses. “But we’re doing the same thing right now,” he said.
“In the face of unrelenting economic warfare, the United States can no longer continue with a policy of unilateral economic surrender,” Trump said.
Speaking from a business forum in India, Chilean President Gabriel Boric warned that such measures, in addition to causing uncertainty, challenge the “mutually agreed rules” and the “principles that govern international trade.”
Colombia President Gustavo Petro, who has clashed with Trump before, said via X that the tariffs marked a global milestone: “Today the neoliberalism that proclaimed free-trade policies all over the world has died.”
Analysts say there’s little to be gained from an all-out trade war, neither in the United States or in other countries.
“Once again, Trump has put Europe at a crossroads,” said Matteo Villa, senior analyst at Italy’s Institute for International Political Studies.
“If Trump really imposes high tariffs, Europe will have to respond, but the paradox is that the EU would be better off doing nothing,” he added, noting that the EU bloc depends more on exports to the U.S. than vice versa..
“On the other hand, Trump seems to understand only the language of force, and this indicates the need for a strong and immediate response,” Villa said. “Probably the hope, in Brussels, is that the response will be strong enough to induce Trump to negotiate and, soon, to backtrack.”
The U.S. slapped a 26% reciprocal tariff on India in a setback to the South Asian country's expectation of getting relief from President Donald Trump's global trade policy that has unnerved world markets for weeks.
The reciprocal tariff will be effective from April 9, according to a statement from the White House.
Trump's Wednesday announcement on India was part of his wider plan to impose a 10% baseline tariff on all imports from April 5 and higher duties on certain other countries, including 34% on China and 46% on Vietnam.
"They (India) are charging us 52% and we charge almost nothing for years and years and decades," Trump said at the White House while announcing the reciprocal tax.
The duty of 26% was based on tariff and non-tariff barriers ,including currency manipulation, the Trump administration said.
India imposed "uniquely burdensome" non-tariff barriers, the removal of which will increase U.S. exports by at least $5.3 billion annually, the White House said in a statement.
The tariffs would remain in effect until Trump determined that the "threat posed by the trade deficit and underlying non-reciprocal treatment is satisfied, resolved, or mitigated," the statement added.
The U.S. has a trade deficit of $46 billion with India.
The reciprocal tariff will add pressure on Indian Prime Minister Narendra Modi, who counts himself among Trump's friends, to find ways to get India off the hook.
Last week, Reuters reported that New Delhi is open to cutting tariffs on U.S. imports worth $23 billion to mitigate the impact on its exports in sectors like gems and jewellery, pharmaceuticals, and auto parts.
Modi's administration has taken a number of steps to win over Trump by lowering tariffs on high-end bikes, bourbon and dropping a tax on digital services that affected U.S. tech giants.
Before the reciprocal announcement, the U.S. tariff rates were among the lowest, with simple average tariffs at 3.3%, compared with India's 17%, the White House said.
A snapshot of trade volumes and tariffs across U.S. and India
Nigel Green, CEO of global financial advisory deVere Group, said the U.S. duties risked pushing India closer to alternative trade blocs and strategic partners.
"(This) makes Indian exports immediately less competitive ... it dents investor confidence just as India is trying to attract global capital fleeing China," he said.
Ajay Sahai, director general at the Federation of India Export Organisations, said the reciprocal tariff on India was lower than key competitors like Vietnam and Bangladesh, which could help the Indian apparel and footwear sectors.
- President Donald Trump's decision to slap a 10% tariff on most goods imported to the United States, as well as higher duties on dozens of countries from rivals to allies, has intensified a global trade war that threatens to stoke inflation and stall growth.
The sweeping duties announced against the serene backdrop of the White House Rose Garden on Wednesday immediately unleashed turbulence across world markets and drew condemnation from other leaders now faced with the end of decades of trade liberalization that have shaped the global order.
As Asia awoke to the news on Thursday, Japan's Nikkei hit an eight-month low while U.S. and European stock futures dropped sharply following weeks of volatile trading. U.S. stocks have erased nearly $5 trillion of value since mid-February.
China, the world's second-largest economy, faced with a fresh 34% tariff on top of the 20% Trump previously imposed, urged the United States to immediately cancel its latest levies and vowed countermeasures.
U.S. Treasury chief Scott Bessent urged other nations not to retaliate, moves that could lead to dramatically higher prices for consumers on everything from bicycles to wine. "If you retaliate, that’s how we get escalation," Bessent told CNN.
Close U.S. allies were not spared Trump's ire, including the European Union, which faces a 20% tariff, and Japan, which is targeted for a 24% rate. Tokyo said it was leaving all options to respond to the "extremely regrettable" duties.
The base 10% tariffs go into effect on April 5 and the higher reciprocal rates on April 9.
The effective U.S. import tax rate has shot to 22% under Trump from just 2.5% in 2024, according to the head of U.S. research at Fitch Ratings.
"That rate was last seen around 1910," Olu Sonola said in a statement. "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. You can throw most forecasts out the door if this tariff rate stays on for an extended period."
The "reciprocal" tariffs, Trump said, were a response to duties and other non-tariff barriers put on U.S. goods. He argued that the new levies will boost manufacturing jobs at home.
"For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike," Trump said.
Outside economists have warned that tariffs could slow the global economy, raise the risk of recession, and increase living costs for the average U.S. family by thousands of dollars.
Canada and Mexico, the two largest U.S. trading partners, already face 25% tariffs on many goods and will not face additional levies from Wednesday's announcement.
Even some fellow Republicans have expressed concern about Trump's aggressive trade policy.
Within hours of Wednesday's announcement, the Senate voted 51-48 to approve legislation that would terminate Trump's Canadian tariffs, with a handful of Republicans breaking with the president. Passage in the Republican-controlled U.S. House of Representatives, however, was seen as unlikely.
Trump's top economist, Stephen Miran, told Fox Business on Wednesday the tariffs would work out well for the U.S. in the long run, even if they cause some initial disruption.
Item 1 of 8 U.S. President Donald Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, D.C., U.S., April 2, 2025. REUTERS/Carlos Barria
[1/8]U.S. President Donald Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, D.C., U.S., April 2, 2025. REUTERS/Carlos Barria Purchase Licensing Rights, opens new tab
"Are there going to be short-term bumps as a result? Absolutely," Miran, the chairman of Trump's Council of Economic Advisors, told the network's "Kudlow" program.
ENDING 'DE MINIMIS'
The reciprocal tariffs do not apply to certain goods, including copper, pharmaceuticals, semiconductors, lumber, gold, energy, and "certain minerals that are not available in the United States," according to a White House fact sheet.
Following his remarks, Trump also signed an order to close a trade loophole used to ship low-value packages - those valued at $800 or less - duty-free from China, known as "de minimis." The order covers goods from China and Hong Kong and will take effect on May 2, according to the White House, which said the move was intended to curb the flow of fentanyl into the U.S.
Chinese chemical makers are the top suppliers of raw materials purchased by Mexico's cartels to produce the deadly drug, U.S. anti-narcotics officials say. A Reuters investigation last year showed how traffickers often route these chemicals through the United States by exploiting the de minimis rule. China has repeatedly denied culpability.
Trump is also planning other tariffs targeting semiconductors, pharmaceuticals, and potentially critical minerals, the official said.
Trump's barrage of penalties has rattled financial markets and businesses that have relied on trading arrangements that have been in place since the middle of the last century.
Earlier in the day, the administration said a separate set of tariffs on auto imports that Trump announced last week will take effect starting on Thursday.
Trump previously imposed 25% duties on steel and aluminum and extended them to nearly $150 billion worth of downstream products.
A bar chart showing US trade deficits and surpluses
Tariff concerns have already slowed manufacturing activity across the globe, while also spurring sales of autos and other imported products as consumers rush to make purchases before prices rise.
Simple average and trade-weighted tariff rates by country
European leaders reacted with dismay, saying a trade war would hurt consumers and benefit neither side.
"We will do everything we can to work towards an agreement with the United States, to avoid a trade war that would inevitably weaken the West in favor of other global players," Italy's prime minister, Giorgia Meloni, said.
U.S. Representative Gregory Meeks, the top Democrat on the House Foreign Affairs Committee, said he would introduce legislation to end the tariffs. Such a bill has little chance of passing the Republican-controlled Congress, however.
"Trump just hit Americans with the largest regressive tax hike in modern history - massive tariffs on all imports. His reckless policies are not only crashing markets, they will disproportionately hurt working families," Meeks said.
Now that the U.S. has instituted broad tariffs worldwide, businesses will be forced to adjust - but the options to cope with the greater-than-expected levies are limited and unpalatable for companies and their customers.
U.S. President Donald Trump ramped up his trade war against the globe on Wednesday with tariff rates ranging from 10% to nearly 50%, depending on the country, in a move economists warned would raise costs, threaten jobs, slow growth and isolate the United States from a system of global trade it pioneered and furthered over several decades. Trump says the levies will bring jobs back to the United States - but executives in the immediate aftermath were focused on possibly raising prices, reducing shipments to the world's largest economy, or just cutting back investment activity outright.
"This is how you sabotage the world’s economic engine while claiming to supercharge it," said Nigel Green, CEO of global financial advisory deVere Group. "The reality is stark: these tariffs will push prices higher on thousands of everyday goods - from phones to food - and that will fuel inflation at a time when it is already uncomfortably persistent."
Trump sees tariffs as a way of protecting the domestic economy from unfair global competition and a bargaining chip for better terms for the U.S.
The most common method of dealing with tariffs is to raise prices, passing along the cost to customers for as long as they can stand it. Other companies may try to diversify supply chains, but Trump's reciprocal 34% tariff on China was accompanied by 46% and 49% tariffs on Vietnam and Cambodia, respectively - all Asian countries where companies had been shifting output.
"The first thing right now - and everyone is doing this - is we're sending letters to announce we're going to do price increases," said Bill Canady, CEO of Arrowhead Engineered Products, a U.S. maker of replacement parts, ahead of the tariff announcement. He said the company is also working with Asian suppliers to see if they will take some of the cost.
Some European companies that primarily serve higher-income consumers were already planning on raising prices even before the 20% tariffs that European Union nations will face. Italian premium coffee maker Illycaffe and Ferrari(RACE.MI), opens new tab have both said they will boost prices, something that well-heeled buyers of sports cars can more easily absorb.
The White House says tariffs will encourage more on-shoring, similar to the revamped USMCA trade deal Trump signed during his first term that encouraged manufacturing activity to shift away from China to Mexico or Canada. German fan and motor maker ebm-papst, for example, is currently deciding whether to build a third production plant or expand its existing site in Tennessee. The group's CEO, Klaus Geissdoerfer, said he had initially thought of a new plant in Mexico, but "some are saying, 'maybe it's better to go to the USA after all because we'll have to pay customs duty in Mexico.'"
Still, some importers may elect not to bring goods to the United States because of the tariffs. The United States is a major importer of automobiles from South Korea, Japan, Germany and other traditional allies as well as high-value technology goods. "The reciprocal tariffs are going to make it fiscally irresponsible for most importers to keep bringing into the U.S.," said Erik Rosica, sales supervisor at freight logistics company OEC Group New York. "These companies would have to pass on a major cost increase to consumers to make it feasible which, frankly, consumers might not be willing to pay."
The most severe risk, according to executives interviewed by Reuters, is that businesses will pull back from spending due to uncertainty. Several executives said they had spent the last few months accelerating purchases to bring inventories into the United States from overseas. Automakers, aerospace companies, retailers, and industrial names all increased imports, which ballooned the U.S. goods trade deficit to a record $157 billion in January - in advance of the tariffs. Now, they are more likely to hold off on spending plans.
"They're going to batten down the hatches, not invest, don't do any deals, and take out costs to try to get ahead of the coming economic whatever-it-is-going-to-be - malaise, or it could be a recession," said Bill George, former CEO of Medtronic (MDT.N), opens new tab and executive fellow at Harvard Business School.
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