Trump’s Tariff War: The Risks to America and the World

U.S. President Donald Trump’s protectionist trade policies have set off a significant shift in global trade, drawing mixed reactions from economists, industry leaders, and policymakers. While the administration argues that tariffs will address economic imbalances and reduce the U.S. trade deficit, analysts point to broader economic implications, including rising consumer costs, potential job losses, and shifting international alliances.

Trump has frequently cited the $1.1 trillion trade deficit as evidence of unfair foreign practices. However, economists and trade analysts point to underlying structural factors—such as domestic fiscal policy, strong consumer demand, and investment trends—as significant contributors.

Tariffs And Their Economic Impact

According to industry estimates, tariffs could increase annual household expenses by approximately $1,200, with potential escalations pushing the figure higher. Additionally, a study from the U.S. Congressional Budget Office (CBO) found that previous tariff measures contributed to the loss of nearly 300,000 American jobs—a trend that may continue if new tariffs are implemented.

Renowned economist Jeffrey D. Sachs has questioned the administration’s approach, stating, “America’s trade deficit imbalances don’t stem from other nations ripping off America. Instead, they result from the U.S. spending beyond its means—financed through tax cuts for the wealthy and government borrowing.”

Meanwhile, former U.S. Secretary of Labour Robert Reich has described the policy as “colossally risky,” warning it could destabilize markets.

Global experts have further warned of the broader risks posed by protectionist policies. Creon Butler, head of the global economy and finance programme at Chatham House in London, cautioned that isolating the U.S. from global supply chains and innovation could result in “more expensive, lower quality products” and a fundamental reconfiguration of trade routes.

The attached chart shows a percentage change in market performance across six major economies (Germany, China, UK, Canada, US, and Japan) since January 17, 2025. Following the tariff announcement in late March, markets sharply declined—particularly in the U.S., Japan, and Canada—underscoring global investor anxiety over the economic fallout of trade.

Image: Percentage change in market performance in major economies

Image Source: Google Finance and The Guardian  

The market reaction has sharpened focus on the real economic impact of U.S. tariffs, particularly on the trade deficit.

Trade Deficit Trends and Economic Data

Despite the administration’s rhetoric, recent data from the U.S. Department of Commerce indicates that tariffs have had a limited impact on narrowing the trade deficit. In 2024, the U.S. exported $4.8 trillion in goods and services but imported nearly $5.9 trillion—resulting in a trade deficit of approximately $1.1 trillion—roughly unchanged from pre-tariff levels.

Image: The Current account trade deficit of the U.S

Source: U.S. Department of Commerce.

U.S. Commerce Department data also indicates that net exports had a negative impact on GDP growth in Q4 2024, with consumer spending driving most of the expansion.

Image: The import and export of the U.S. in the 4th quarter, 2024

Source: U.S. Department of Commerce. 

Tariffs Shake Global Trade Dynamics

As per data from the U.S. International Trade Administration, Mexico ($505.9B), China ($438.9B), and Canada ($412.7B) were the top exporters to the U.S. in 2024, followed by Germany ($160.4B) and Japan ($148.2B). Image: The top exporters to the U.S. in 2024 expected to get affected by the new Tariffs

With new tariffs targeting key industries, analysts anticipate potential disruptions in automobiles, technology, manufacturing, and industrial goods, which could affect global supply chains.

Global Response and Emerging Trade Alliances

The tariff policy has prompted diplomatic discussions among major trading partners. In response to the 25% tariff on Asian car exports and levies on steel and aluminum, China, South Korea, and Japan convened a high-level summit in Seoul—the first in five years—to explore deeper regional trade cooperation. Officials from all three countries reaffirmed their commitment to a trilateral free trade agreement (FTA) aimed at strengthening regional commerce.

Beyond Asia, the European Union and China, often at odds, have intensified their engagement on trade policies, while Canada, Mexico, and Japan are considering strategies to mitigate potential disruptions. Meanwhile, India and Australia continue to expand their role in the Asia-Pacific trade network.

As global economic uncertainty persists, the impact of U.S. tariffs remains a subject of ongoing debate. With new tariffs targeting key sectors such as automotive, electronics, and steel, trading partners of the USA are expected to face significant economic headwinds—potentially prompting retaliatory measures.