Effect of Trump's tariffs if implemented fully: inflation doesn't fall so much (+0.8%) - global GDP is reduced slightly (-0.5%) - but Congress has to pass these NTR tariffs with a tiny House majority
Globally if tariffs were 60 per cent on imports from China and 10 per cent on imports from all other economies, by one simulation, for every year that they are in place:
GDP of USA is reduced by about 0.65 to 0.9%
GDP of Mexico and small European countries is reduced by about 1%
GDP of China is reduced by 0.5%.
Global GDP is reduced by 0.5%
See: . The Effects of Higher US Tariffs - NIESR
It also
adds about 0.8% to US inflation in 2025.
QUOTE Forecasters at Pantheon Macroeconomics project that a 10% tariff would increase inflation by about 0.8 percentage points next year and impose an additional drag on U.S. manufacturers.
. trump-election-economy-tariffs-deportations-detention-camps-military-migrants
But with inflation falling that doesn't mean inflation will be more next year just not recovered as much as it could.
Similarly, the reduction in GDP wouldn’t likely turn it into a recession. It just means that inflation will be a little higher than it needs to be and the GDP a bit less than it could be.
Mortgage rates are based on the Federal base rate so that wouldn't necessarily be affected to the same amount.
According to another analysis:
costs to the household of 4% for low income families, 2% for high income and $1,700 each year for middle income families according to the non partisan Peterson Institute for International Economics
. Would Donald Trump’s tariffs hurt US consumers?
However it is not so easy to pass tariffs like this:
uniform tariffs
without a rationale
10% over the board increase
They are NTR tariffs [Normal Trade Relations] and for these he needs to pass legislation in Congress.
He may have difficulty passing this with a single digit majority in the House, and with 20+ Freedom Caucus MAGA extremist rebels who tend to vote against everything.
Also unless he finds a way to do it under reconciliation, the Democrats can block it in the Senate with a 40 vote filibuster, as they have 47 seats.
See my:
He could do similar tariffs to those in his first term as he has done those already.
However if he tries to use section 232 (national security) for over the board tariffs this may well be stopped in the courts as we’ll see.
See also CNBC:
. Trump ‘most likely’ needs 60 votes in Senate to enact tariff plan, Sen. Rick Scott suggests
In more detail:
What is a tariff? 10% of the price for anything you buy from another country goes to the US government - which Trump mistakenly thinks helps the US economy
First what tariffs are - they mean that the US government will take away say 10% of the price of anything you buy from Europe. If you buy a car that costs $10,000 then the US will add $1000 to the price that you have to pay for it and pocket the difference. Trump is proposing 10% to 20% tariffs for most countries and 60% tariffs for China. He has mentioned higher prices in some speeches.
Trump thinks this is a way to both add money for government and to protect US industry. But US industry for the most part needs to export to the rest of the world and the other countries ALMOST ALWAYS respond with retaliatory tariffs because they have to, to protect their own industry.
So this doesn't work as an economic policy to boost the US economy, though naively, it sounds like it would. It would only work if US companies depended very little on sales to the rest of the world and got their money mainly by selling to Americans.
But US is the other way round. It is a world leader on many products which it exports to the world and these are a source of much of its wealth. So a trade war will hurt the US economy and remove several % from its GDP over time.
But Trump doesn't understand this. He thinks tariffs help the US economy.
Likely Trump negotiates away many of the tariffs after countries impose retaliatory tariffs on the USA
We have experience of what it was like from his first term. Yes they impact on the economy - but not enough to turn it into a recession depending on the size of tariff.
They might be in place for a year or two before he comes to an agreement. Last time he came to an agreement quickly with Canada. Others took longer and some lingered into the Biden administration. It took 6 years to reach an agreement with UK on British steel and retaliatory tariffs on US Harley Davidson motorbikes which was only finalized under Biden in June 2022.
Trump did tariffs in his first term too. He started with tariffs on specific Chinese goods then India but then he extended them to Canada and Europe and basically most of the world. That led to a (METAPHOR NOT REAL WAR) trade war with all those countries imposing retaliatory tariffs on selected US goods. The tariff war with Canada stopped pretty quickly with both sides removing all tariffs, also with Australia and Argentina they were exempt from tariffs quickly.
Focusing on Europe the US put tariffs on imported aluminium and steel.
Europe responded with tariffs on steel, aluminium and agricultural goods like orange juice and cranberry juice, clothing, washing machines and boats.
Steel goods included cars and motorbikes there.
One of the most affected was Harley-Davidson, the motorcycle manufacturer which then said it would need to move some of its manufacturing out of the USA to avoid the tariffs.
This led to negotiations which in the UK lasted to 2022 when US removed some tariffs from British steel in return for Britain dropping its tariffs on US steel goods.
. harley-davidson-trade-tariff
However long before then in direct response to Trump's tariffs, Harley Davidson moved much of its motorcycle production to Thailand which has economic conditions favorable to motorcycle production.
Thailand has 60% import tariffs on motorcycles - that can work for a smaller economy as a way to protect itself but doesn't work for a bigger economy like the USA.
. Harley-Davidson Moves More Production to Thailand, Thanks to Thai Tariffs and Tax Incentives
It was the same with other countries. Basically Trump negotiated country by country to remove tariffs on his side in return for them removing their retaliatory tariffs on their side.
By analogy with his first term - expect an immediate hit on ALL US partners - and on the USA - then retaliatory tariffs - then negotiations to remove the tariffs
So that is an example which shows how it will work. It would be an immediate hit on European industry, and indeed on ALL the US partners now that he plans a tariff on all countries not just specific ones.
Then this will lead to all countries that trade with the US imposing retaliatory tariffs because they have to. They can't let the US greatly reduce their exports to the US and not protect their own industry from the exports from the US to their country.
That then will be an immediate hit on the global GDP because all industry that exports to the US or imports from it will immediately be affected greatly reduce the flow of trade around the world. The amount of the hit will depend on the size of the tariffs. Obviously 100% tariffs and retaliatory tariffs would stop almost all trade between two countries.
This is about the proposed Trump tariffs.
. What are tariffs and what could they mean for you? What to know after Trump's win
Of course if this continued the rest of the world would reconfigure and it would set up new trading relationships that bypass the USA and also US companies would move production out of the US.
The US industry is the main victim of it.
However to prevent this happening, Trump would respond to the retaliatory tariffs by negotiating deals country by country around the world as he did in his first term.
He will also respond to US companies threatening to move production out of the USA by reducing tariffs on their exports. He has to or else the US would end up with far less industry than it has today, with most of it outsourced to production in other countries to avoid the tariffs.
Then they will end up with much lower tariffs than the ones originally arranged and varying country by country depending on their ability to negotiate with the USA.
Alternatively, other countries would reconfigure to trade with other countries not the USA.
It will be a hit on GDP globally, everyone predicts that but the amount of hit on global GDP depends on the amount of the tariffs and how long they last for.
Effects of simulation of 60% tariffs on imports from China and 10% for all other economies - Mexico and small Europe countries lose 1% a year GDP for 5 years. US loses < 1% a year. China loses 0.5% a year
This is a simulation for 60 per cent on imports from China and 10 per cent on imports from all other economies
The worst affected would be Mexico. Small European countries are next worse affected, they could lose 5% of GDP in the next 5 years. That is almost exactly 1% per year for 5 years (small numbers approximation).
The US would lose 1.3 to 1.8% in 2 years. Or about 0.65 to 0.9% a year
China's GDP would lose 1% in 2 years or about 0.5% a year. If China doesn't retaliate its inflation will be reduced [may be an incentive for China not to retaliate].
Global GDP would fall 1% over the next 2 years.
These figures aren't enough to turn growth into recession.
The US would lose 1.3 to 1.8% of GDP growth over the next two years.
QUOTE STARTS
Our scenarios include an increase in US import tariffs of 60 per cent on imports from China and 10 per cent on imports from all other economies, with subsequent retaliatory tariffs from US trading partners. We also run simulations with only a temporary rise in tariffs (and retaliation) and where we assumed there was no monetary policy response.
The results show that US GDP growth would decrease by around 1.3 to 1.8 percentage points over the next two years, depending on whether trade partners retaliate.
China’s GDP growth would also decline by around 1 per cent over two years, while US tariffs may reduce Chinese inflation in the case where China does not retaliate.
Higher US tariffs also reduce global GDP growth by around 1 per cent over the next two years
...
Mexico would be the hardest hit country due to its close trade ties with the United States, followed by small open European economies whose real GDP would be around 3 to 5 per cent lower five years after the tariffs.
So it will impact the US economy but the good news is that the economy is in a period of strong recovery because of the actions of both Trump to protect the economy in 2020 and then of the Biden administration which counter to what Trump says did lots to protect and grow the economy in the last 4 years. It is in process of recovery and forecasts for next year are very good and this will just hit on it and reduce the GDP but not tip it over to a recession
From that same page:
QUOTE The central bank is widely expected to lower its benchmark rate by a quarter percentage point on Thursday. But Pantheon's Tombs expects fewer rate cuts next year, as a result of Trump's election.
I think that 0.8% is relative to what's expected to be a falling inflation and the economy is strong enough so that the base rate would continue to fall but not so much as it would have under Harris.
Worldwide - for some reason it might reduce inflation in China if they don't do retaliatory sanctions back.
QUOTE China’s GDP growth would also decline by around 1 per cent over two years, while US tariffs may reduce Chinese inflation in the case where China does not retaliate
I think it would have less influence on inflation in many countries than in USA because after all the retaliatory tariffs mean the USA will be the hardest hit country as other countries can all trade with each other without these tariffs but the USA will likely have retaliatory tariffs from every country in the world it trades with, with the possible exception of China if it decides not to retaliate for the purposes of reducing inflation..
About 4% increase in cost of living for low income families in the USA
Prices will increase a bit for sure. About 4% increase in costs of living for low income families.
The good news is inflation is going down and so he will only be counteracting some of the reduction in inflation that is going on anyway.
It may feel like he has made things better but they'd be far better without the tariffs. It's like a sort of extra tax but one that doesn't look like one to the consumer.
QUOTE STARTS
The non-partisan Peterson Institute for International Economics has estimated, external Trump’s new proposed tariffs would lower the incomes of Americans, with the impact ranging from around 4% for the poorest fifth to around 2% for the wealthiest fifth.
A typical household in the middle of the US income distribution, the think tank estimates, would lose around $1,700 each year.
Most of the economic burden in his first term was passed on to the consumer in the US and so this is also likely to happen this time around.
QUOTE STARTS
The question of where the final “economic” burden of tariffs falls, as opposed to the upfront bill, is more complicated.
If the US importing firm passes on the cost of the tariff to the person buying the product in the US in the form of higher retail prices, it would be the US consumer that bears the economic burden.
If the US importing firm absorbs the cost of the tariff itself and doesn’t pass it on, then that firm is said to bear the economic burden in the form of lower profits than it would otherwise have enjoyed.
Alternatively, it is possible that foreign exporters might have to lower their wholesale prices by the value of the tariff in order to retain their US customers.
In that scenario, the exporting firm would bear the economic burden of the tariff in the form of lower profits.
All three scenarios are theoretically possible.
But economic studies of the impact of the new tariffs, external that Trump imposed in his first term of office between 2017 and 2020 suggest most of the economic burden was ultimately borne by US consumers.
A survey by the University of Chicago, external in September 2024 asked a group of respected economists whether they agreed with the statement that "imposing tariffs results in a substantial portion of the tariffs being borne by consumers of the country that enacts the tariffs, through price increases". Only 2% disagreed.
It won't be a huge change but still, a 4% reduction in income for low income families is going the wrong direction as the US exits from a recession.
US economy is very strong because of the measures taken by Trump in 2020 and Biden in 2021-4 - already on its way out of inflation and he didn’t need to do anything to see a continuing recovery - but may slow it down
The good news is the economy is very strong as a result of previous measures by Trump in 2020 and by Biden since then which despite all the campaign propaganda have put the US economy in a strong position with it already well on its way out of inflation.
He didn't need to do anything to see a continuing economic recovery.
Also probably he won't keep the tariffs in place for over long especially if it hurts the economy significantly.
Trump’s proposed tariffs require legislation in Congress
In his first term Trump imposed his tariffs under executive orders.
This time though he wants to impose across the board tariffs without any rationale for them. To do that he needs to go through Congress.
President-Elect Trump has proposed imposing NTR [normal trade relations] tariffs of 10%-20% on imports from all countries (presumably including those with which the U.S. already has a free trade agreement in place, such as the U.S.-Mexico-Canada Agreement (USMCA) that his first Administration was able to negotiate, and which Congress enacted effective July 2020).
These new NTR duties would be in addition to those already in place (although many products are duty-free when imported into the U.S., such as merchandise related to information technology.) The prospects for these tariff increases rest entirely with Congress given that they are considered revenue measures which, under Article 1, Section 8 of the Constitution, must originate with legislation proposed in the U.S. House of Representatives and be passed by both the House and U.S. Senate. The President has no authority to unilaterally raise NTR duty rates.
. Tariffs and Trade Taking Center Stage in New U.S. Administration
Trump can expect other countries to retaliate with similar NTR tariffs back. There is currently no way to resolve this dispute in the World Trade Organiation, because Trump withdrew US representation from the WTO body that would hear any dispute.
With both the House and the Senate under control by the GOP, Congress must be mindful of the commitment the U.S. made as a WTO member not to exceed the bound rates (ceilings) established in the most recent WTO Concession Agreements.
If Congress decides to nonetheless raise NTR tariffs above the bound rates, it invites retaliation by all WTO member states to raise their own normal duty rates on goods of U.S. origin by similar percentage
[Goes on to explain that normally the WTO would hear any dispute like this, but Trump has removed all US representation from the WTO Apellate body and so it can’t function]. Tariffs and Trade Taking Center Stage in New U.S. Administration
This legislation has to start in the House and the very small House majority is likely to cause major problems for Trump to try to pass ANY bills there.
If he can’t do this he could do the section 301 or 232 tariffs of his first term.
In his first term Trump used section 301 and 232 tariffs - these can only be imposed in response to a report from the Department of Commerce
In his first term, Trump’s tariffs were based on
section 232, reasons of National Security which starts with a Department of Commerce investigation - he used this for instance to restrict imports of steel
Section 301 which are tariffs the president can impose after an investigation by the Office of the U.S. Trade Representative (USTR) finds that a foreign government has burdened or restricted US commerce in a way that violates an international agreement or is unjustified, unworkable or discriminatory - he used this against China.
In more detail for section 232, Trump has to start by asking for a report from the Department of Commerce to see if there is any threat to National Security.
Section 232 of the Trade Expansion Act of 1962 authorizes the president of the United States to modify imports of goods and services based on a determination of threat to national security. The process begins with an investigation by the Department of Commerce on a certain import. After the findings of such an investigation are then reported, the president may choose to impose tariffs or take other measures to limit imports, or to take no action at all.
. Section 232 of the Trade Expansion Act: What It is, How It Works
More details here: Section 232 of the Trade Expansion Act of 1962
This is about the potential for legal challenges up to the Supreme Court. The challenges failed in his first term but may succeed this time around.
The bigger the tariffs the greater the challenge
Has Trump gone beyond the authority of Congress
QUOTE STARTS
During Trump’s first term, the Supreme Court twice declined to question the 25% tariffs he placed on imported steel products. Trump relied on a provision known as Section 232, which gives the president broad discretion to impose tariffs on national security grounds.
Using that legal authority will be harder with an across-the-board tariff. "The bigger that Trump goes with this, the bigger of a challenge he’ll face,” said Ilya Shapiro, director of constitutional studies at the conservative Manhattan Institute. But he added that courts "have generally given a lot of discretion” to presidents who levy tariffs.
Trump also has other tools at his disposal, including the International Emergency Economic Powers Act, which gives the president broad leeway to address crises.
Ultimately, the question may be whether the court concludes Trump has gone beyond the authority granted by Congress. The court could also consider whether lawmakers have unconstitutionally ceded their legislative authority by giving the president so much discretion.
On the 301 tariffs for China then the Supreme Court might conclude that the tariffs are tantamount to ending trade with China and that Congress needs to get involved.
QUOTE STARTS
Could Trump, as president, order without formal approval by Congress, tariffs at a 60 percent rate on imports from China? When Congress last addressed the issue of China tariffs, it was assuring lower tariffs on Chinese goods, not the reverse. In 2000, it enacted a statute that explicitly gave China the same tariff treatment as other countries receive (termed “most favored nation” treatment).
To more than double the current retaliatory rate would be tantamount to ending trade with China. In this case, the Supreme Court could find that it is the prerogative of the Congress to set tariffs at rates amounting to an embargo outside of war, assuming there were no grounds for invoking laws protecting national security.
As for the other Trump tariff threat, would a 10 percent additional tariff on the products of all countries imposed by executive action be deemed constitutionally permissible, if somehow framed as being “retaliatory”? Or would the courts find that this would go beyond the Congress’s delegation of this trade authority intended for more limited circumstances?
. would-trumps-threats-new-tariffs-survive-legal-challenge-supreme
This is about how he could reconsider them.
QUOTE STARTS
But just how the incoming Trump administration will carry out his tariff threats and how aggressively it will pursue the across-the-board idea is still an open question. Many CEOs are hoping that he pulls back on some of the more draconian proposals.
“He may reconsider given the potential drawbacks of the levies, or the administration may use the threat of tariffs as a negotiating tactic with foreign governments,” Wells Fargo & Co. economists Jay Bryson and Michael Pugliese said in a note to clients Wednesday. However, “we advise readers to take the president-elect’s threats of tariffs seriously if not literally.”
. How Trump could put his campaign promises on tariffs into action
Remember lots of people are in the same situation as you.
And if instead of stopping inflation as he promised he increases it he can guarantee to lose lots of seats for his party in the mid-terms in 2026.
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Umm as a Canadian I'm a little worried as this is supposedly happening tomorrow? How was he able to get this thru so fast?