WASHINGTON (AP) — The
trade war
President Donald Trump promised has begun,
threatening the world economy
and straining the United States’ longstanding alliances in Europe and Asia.
Goods imported from
dozens of countries
and territories are now going to be taxed at sharply higher rates, and that is expected to drive up the costs of everything from cars to clothes to computers.
These tariffs – which can run as high as 50% -- are
meant to punish countries for trade barriers
that Trump says unfairly limit U.S. exports and cause it to run huge trade deficits.
Even countries with which the U.S. enjoys trade surpluses – meaning it sells to them more than it buys, such as the United Kingdom and Argentina – are being targeted with a minimum tariff of 10%. And the highest tariffs are landing on two tiny territories that trade little with America — the African kingdom of Lesotho and the French possession of Saint Pierre and Miquelon off Canada’s Atlantic coast.
For decades, global commerce abided by tariff rates agreed to by the U.S. and 122 other countries during the 1980s and 1990s. On Wednesday, Trump detonated that arrangement, saying that other countries had exploited the system and “ripped off’’ the United States for years, causing its once-mighty manufacturing base to shrink.
“Our country has been looted, pillaged, raped and plundered,” the president said in the Rose Garden.
Global
financial markets recoiled
on Thursday. On Wall Street, the Dow Jones industrial average dropped 1,679 points, or nearly 4%, and the U.S. dollar fell against other major currencies – a sign that investors are worried about the U.S. economy.
“This is a game changer, not only for the U.S. economy but for the global economy,” said Olu Sonola, head of U.S. economic research for Fitch Ratings. “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 of time.”
Trump is doing what he said he'd do
During the presidential campaign, Trump repeatedly talked about imposing a “universal tariff’’ of 10% to 20% on all imports -- and the new 10% baseline tariffs fit the description.
He also threatened to hit imports from China with 60% tariffs, and he's now slapping a “reciprocal’’ tariff of 34% on China – on top of the 20% levies he’d announced earlier this year.
Combine the new tariffs on China with the ones left over from his first term, and from President Joe Biden’s, and the full tax on Chinese goods will now approach 70%, said Julian Evans-Pritchard of Capital Economics.
“It’s extreme, but it aligns with what Trump campaigned on,’’ said Erica York, vice president of federal tax policy at the Tax Foundation.
Nobody knows if the tariffs will prove permanent or if the U.S. will lower or drop them in response to other countries negotiating to reduce their own tariffs and other trade barriers.
U.S. tariff rates are going back more than 100 years
Even before Wednesday’s bombshell, the president had been lobbing tariffs with abandon in his second term. He restored 25% tariffs from his first term on steel and aluminum, imposed 25% levies on cars and light trucks, hit China with 20% import taxes and levied 25% tariffs on some Canadian and Mexican imports.
The Budget Lab at Yale University estimates that his 2025 tariffs – including Wednesday’s – would lift America’s effective average tariff rate to 22.5%. That would be up from 2.5% last year and the highest level since 1909 — even higher than the notorious Smoot-Hawley tariffs that Congress passed during the Great Depression.
Before lawmakers ratified the 16th amendment to the Constitution in 1913, introducing a national income tax, tariffs supplied a big share of the federal government’s revenue – more than 90% at times in the mid-1800s. The U.S. moved from tariffs to income taxes to raise more money to finance an expanding government, collect more revenue from the wealthy and make the economy more efficient by reducing trade barriers and encouraging competition.
Trump wants to
return to those days
and replace income tax collections with tariffs. Last year, tariffs accounted for less than
2% of federal revenue
, while 51% came from the income tax and 36% from Social Security and Medicare taxes.
Tariffs are likely to damage the U.S. and world economies
The Yale Budget Lab estimates that Trump’s 2025 tariffs will increase U.S. consumer prices by 2.3% in the short run, costing American households $3,800 a year.
The tariffs he announced on “Liberation Day” alone will push up prices by 1.3%, the lab calculates – a $2,100 tax on households. Clothing prices will go up 17% as higher import tariffs hit textiles from Southeast Asia and Bangladesh.
The lab says that Trump’s tariffs will reduce U.S. economic growth – which was 2.8% in 2024 -- by 0.9 percentage points this year.
The damage will also extend to Europe, Southeast Asia and China. “We can expect global economic growth to start plummeting as trade flows decline, prices increase and businesses put off investments,’’ said Wendy Cutler, a former U.S. trade official who is now vice president at the Asia Society Policy Institute.
Trump hits allies and poor countries
Between the so-called reciprocal and baseline tariffs, Trump hit allies and adversaries, rich and poor countries, and those open and closed to U.S. exports.
Even Singapore, perhaps the freest-trading economy in the world, is getting slugged with the 10% levies, belying Trump’s claims to be balancing other countries’ protectionist policies, said Scott Lincicome, a trade analyst with the libertarian Cato Institute.
“This is not reciprocal at all,’’ Lincicome said. “Getting to real numbers on foreign trade barriers and their effects on U.S. trade numbers would require lengthy investigations and would take months, if not years, to produce. ... They might as well have pulled the numbers out of a hat.’’
Taiwan, a U.S. ally, faces a 32% tariff, not much less than geopolitical rival China’s 34%.
Poor countries also bore the brunt of some of Trump’s most onerous tariffs.
Lesotho, a tiny country surrounded by South Africa, is facing a 50% “reciprocal’’ tariff, for example, even though its annual economic output per person is less than $2,900 (compared to America’s $76,200).
Cambodia, whose annual economic output per person is about $7,200, is absorbing a 49% tariff. That is partly, the White House says, because it has been a conduit for Chinese-made goods eventually headed to the United States to dodge U.S. tariffs on China.
Canada and Mexico got off relatively easy
Trump’s trade policies toward America’s northern and southern neighbors have been erratic. He has twice announced and then suspended or watered down 25% tariffs on Canadian and Mexican goods, ostensibly to get them to do more than crack down on fentanyl and immigrants crossing into the U.S. illegally.
Last month, Trump suspended the 25% duties on Canadian and Mexican goods that comply with the US-Mexico Canada Agreement, a trade pact he negotiated with the two countries in his first term. On Wednesday, the White House said that USMCA-compliant imports could continue to enter the United States duty free.
Once the two countries have satisfied Trump’s demands on immigration and drug trafficking, the tariff on the rest of their imports would drop from 25% to 12%, the White House said.
“The obvious winners were Canada and Mexico,’’ Neil Shearing and Paul Ashworth of Capital Economics wrote in a commentary.
