The Global Tariff War: How Trump’s Trade Battles Are Shaking Economies Worldwide

Written by Dario Silić, PhD, SSBM Geneva Professor.

The Origins of the Tariff War

The tariff war began in 2018 when President Trump imposed sweeping tariffs on steel and aluminum imports, targeting countries like China, Canada, Mexico, India, and the European Union. The stated objectives were to protect American jobs, revitalize the manufacturing sector, and ultimately reduce the U.S. trade deficit, which had ballooned to over $621 billion by 2018.

However, the trade imbalance was only one aspect. Many economists argue that the underlying motive was to address America’s soaring national debt, which surpassed $33 trillion by the end of 2024 out of which $9 trillion is due to refinance in 2025. By imposing tariffs and attempting to stimulate domestic production, the U.S. government aimed to boost revenue and lower refinancing costs through reduced interest rates.

Let me explain in more detail. It seems that President Trump and Elon Musk, the leadership of the Department of Government Efficiency (DOGE), are trying to reduce public expenditures and increase American productivity so that the USA can offset the deficit from $2 trillion to $0 and inflation will STOP. Every day thousands and thousands of American workers are fired in the USA, sometimes even without any justification. Sometimes probably justified like reductions in USAID agencies but sometimes with mistakes recognized publicly by Elon Musk such as agencies specialized in health.

Elon Musk’s has led to significant workforce reductions across various U.S. federal agencies, sparking considerable controversy and legal challenges. Critics argue that these actions have resulted in the loss of critical expertise, compromised essential services, and potentially violated constitutional provisions.​

In early February 2025, DOGE initiated mass layoffs at USAID, placing over 10,000 direct-hire personnel on administrative leave, with only 294 employees retained for mission-critical functions. This drastic reduction raised concerns about the continuation of vital international aid programs. A U.S. District Judge later found that Musk’s planned cuts to USAID were likely unconstitutional, blocking further reductions. ​

The mass layoffs at the Department of Health and Human Services (HHS) have been announced, with plans to reduce 10,000 positions and shut down several agencies to cut costs. These cuts have raised alarms about potential impacts on public health programs and services. ​ These actions have prompted widespread protests and legal scrutiny. Demonstrations have erupted nationwide, with citizens expressing opposition to the perceived overreach and the potential dismantling of essential government functions. Legal experts and policymakers continue to debate the constitutionality and long-term implications of these workforce reductions.

If you create uncertainty in the market and this is what Donald Trump constantly does, you scare people, then the masses buy bonds so there is a huge appetite for bonds and it lowers the bond rates and when the rates drop the US Government, led by President Trump will refinance cheaper all their huge debts of $9 trillion only in 2025. Consequently, a deficit of $2 trillion will shrink.

This decline is attributed to several factors, including reduced vehicle sales in key markets like Europe and China, as well as investor concerns over CEO Elon Musk’s political involvement.

Economic Projections and Consumer Confidence

The Organization for Economic Co-operation and Development (OECD) has revised its economic projections downward, citing the impact of the tariffs. Global GDP growth is projected to moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026. In the U.S., annual GDP growth is expected to slow to 2.2% in 2025 and 1.6% in 2026. These adjustments reflect concerns that higher trade barriers and increased geopolitical uncertainty are weighing on investment and household spending. ​

U.S. consumer confidence has also taken a hit, falling to its lowest level in over two years amid fears surrounding the rising tariffs. The University of Michigan Survey of Consumers indicates a 30% drop in consumer sentiment since November, with anticipated inflation and job losses contributing to the decline. This downturn in confidence has led to significant declines in U.S. stocks, including the S&P 500. ​

American consumers are likely to see car prices surge by up to 20%, while global car manufacturers brace for declining sales and increased production costs. The Dow Jones and the S&P 500 have faced turbulent times, with automotive and manufacturing stocks particularly hit hard.

Trade Deficit and Import Trends

The U.S. trade deficit widened to $98.4 billion in December 2024, a 24.7% increase from November, marking the second-highest reading on record. This surge was driven by importers hedging against potential port strikes and anticipated tariffs, leading to increased imports of industrial supplies, consumer goods, and capital goods. Notably, imports of finished metals such as iron and steel rose significantly, as these products were expected to be highly susceptible to new tariffs and retaliatory measures by trading partners. ​

Retaliatory Measures and Global Response

In response to the U.S. tariffs, several countries have announced retaliatory measures:​

• China: Implemented tariffs on approximately $21.2 billion worth of U.S. exports, including coal, liquefied natural gas, oil, agricultural machinery, and large motor vehicles, with rates ranging from 10% to 15%. ​
• European Union: The European Union has threatened to impose tariffs on U.S. agricultural products in response to further American tariffs on European goods. If the Trump administration continues the tariff war and targets areas where the U.S. economy is most vulnerable, Brussels is expected to place tariffs on American soybean imports.
  The U.S. is the primary supplier of soybeans to Europe, especially in Germany, which represents a particularly important market. Soybeans are processed into soybean meal, a critical component of feed for pigs, poultry, and cattle due to its high protein content. However, the EU itself does not produce sufficient quantities to meet demand. A significant portion of soybeans also comes from Brazil, according to a reputable business daily that cited the German Meat Industry Association. The association confirmed that if tariffs are imposed on soybeans, increased meat production costs would be inevitable.

  The products such as pork, cattle, and poultry farmers would be the first to feel the impact of higher costs, which would then be passed on to the prices of meat products.
  In response to U.S. tariffs on steel and aluminum, which took effect on March 12, the EU recently announced countermeasures targeting American products. As an initial step, new tariffs on imports of whiskey, denim, motorcycles, and peanut butter, among other goods, will be implemented starting in April. Further EU tariffs could follow in mid-April, with expectations that they may include American agricultural products.

• Canada and Mexico: Responded with tariffs on American steel, aluminum, and various agricultural products, directly impacting U.S. producers.​
  In response to U.S. tariffs, Canada has imposed 25% tariffs on $155 billion worth of U.S. imports, including products like orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. Prime Minister Mark Carney stated that these tariffs signify the end of the traditional Canada-U.S. relationship, prompting Canada to seek new trade partnerships. In retaliation to U.S. tariffs on Canadian steel and aluminum, Canada is implementing 25% reciprocal tariffs on U.S. steel products worth $12.6 billion, aluminum products worth $3 billion, and additional goods totaling $14.2 billion, affecting items like tools, computers, servers, display monitors, sports equipment, and cast-iron products.

  In response to U.S. tariffs, Mexico has recently increased import duties on various goods from non-free trade agreement (FTA) countries. On August 15, 2023, Mexico’s government published a decree imposing temporary import tariffs ranging from 5% to 25% on 392 tariff items, including products such as steel, aluminum, textiles, apparel, footwear, chemicals, and glass. This measure aims to protect domestic industries from unfair competition and is set to remain in effect until July 31, 2025.​

  Furthermore, on April 22, 2024, Mexico published another decree modifying the tariff law, increasing import duties on an additional 544 goods, including steel, aluminum, textiles, apparel, footwear, wood, plastic, chemicals, paper, ceramics, glass, electrical materials, transportation equipment, musical instruments, and furniture. These measures are also temporary, effective until April 23, 2026, and aim to support the development of domestic industries and address market distortions caused by imports from non-FTA countries.​

• India: On one side, raised tariffs on 28 U.S. goods, including almonds and apples, in retaliation to steel tariffs.​
  On the other side, India is actively seeking to adjust its import tariffs to safeguard its exports and maintain favorable trade relations. To counteract the impact of U.S. reciprocal tariffs set to take effect on April 2, 2025, India is considering reducing tariffs on over half of U.S. imports, totaling approximately $23 billion. Additionally, India has offered tariff cuts on specific U.S. agricultural products, such as almonds and cranberries, as part of ongoing trade negotiations aimed at averting the impending U.S. tariffs. These proactive measures are part of India’s broader strategy to address U.S. concerns over high tariffs and to strengthen bilateral trade relations.

  These retaliatory measures are expected to further strain international trade relationships and may lead to prolonged economic tensions.​

The Economic Impact: Producers, Consumers, and Governments

• Producers: Tariffs have increased production costs for manufacturers reliant on imported raw materials. Many American producers have faced higher input costs, reduced profitability, and leading to potential layoffs. On the other side, Trump is trying to boost domestic production by demotivating American companies to import as it will be more expensive. Higher domestic production is supposed to reduce inflation in the USA according to Trump and its advisors.
• Consumers: Higher tariffs translate to increased prices for imported goods. American consumers are feeling the strain through elevated prices on everyday items, from electronics to groceries.
• State Budgets and Trade Balances: While tariffs generate revenue for governments, they can also distort trade balances by reducing export competitiveness. U.S. exports have dropped significantly, contributing to a widening trade deficit in recent months.
• GDPs and Stock Exchanges: Analysts estimate that the ongoing tariff war could shave 0.5% to 1.0% off global GDP growth over the next year. Stock markets have reacted sharply, with the Dow Jones and S&P 500 experiencing volatile swings whenever new tariffs are announced.

Is the Strategy Backfiring?

While the U.S. aimed to reduce its national debt through tariffs, many economists argue that the approach is counterproductive. Instead of bolstering the domestic economy, it is likely to slow economic growth and reduce tax revenues.

Additionally, American companies dependent on exports are struggling to compete in foreign markets. As tariffs become more widespread, the risk of a global recession looms larger.

Conclusion

The global tariff war, marked by the recent U.S. imposition of a 25% tariff on imported cars and auto parts, has led to significant economic repercussions worldwide. From declining consumer confidence and stock market volatility to increased production costs and strained international relations, the ripple effects are widespread.

Analysts argue that the U.S. administration’s intention to reduce public debt and the state deficit may have backfired, as economic instability leads to increased risk premiums on government bonds. The prospect of lower interest rates, once deemed a benefit of tariff policies, is being overshadowed by the rising uncertainty and fluctuating bond yields. As countries continue to implement retaliatory measures, the full impact on producers, consumers, state budgets, trade balances, and GDPs remains to be seen. The situation underscores the complex interplay between trade policies and global economic stability.

From the 94% of the stocks traded it seems that only 8% is held by Americans. Taking from the rich in the short term and increasing the middle class will also help to lower prices. With stock prices going constantly up and down it creates instability for investors and will motivate them to sell stocks and buy bonds as more stable and less risky financial instruments.

Some economists like Warren Buffet, believe that Trump is making the best economic moves in the last 50 years. If there is a huge accumulation of cash in the US treasury it will lower the interest rates, and weaken the US dollar, which all will enable a cheaper refinancing and reduction of the American huge deficit of $2 trillion in 2025. Is that the reason that pushed Buffet to sell a huge part of its stock portfolio and to keep cash? Difficult to say and the future will tell us if this shock therapy activated by President Trump is a genius play or will be a huge disaster for the US economy and the world in our globalized economy.