Escalating U.S. duties enacted in numerous global economies
The Trump administration has announced a wave of increased tariffs on various goods from trading partners, with the latest move targeting India and several other countries.
Existing exemptions still apply, with pharmaceuticals and smartphones excluded for now. The new tariffs will see Indian goods face a 25% duty, which will double in three weeks, while the European Union, Japan, and South Korea now face a 15% tariff. Syria, Myanmar, and Laos face tariffs at either 40% or 41%.
The increased U.S. tariffs are expected to have a significant impact on the economy. According to economists, these tariffs could drive up inflation by about 1.8% in the short term, due to higher consumer prices resulting from increased import costs. They also project that real GDP growth is lowered by about 0.5 to 0.9 percentage points annually in the near term, with the U.S. economy ending up roughly 0.4% to 0.5% smaller in the long run.
These tariffs are also expected to have negative labor market effects, increasing the unemployment rate by approximately 0.3 to 0.5 percentage points and reducing payroll employment by roughly 500,000 to 640,000 jobs within a year.
The overall economic effect resembles a scenario of stagflation—characterized by rising inflation combined with stagnant or declining growth—since tariffs push up costs for businesses and consumers while generating business uncertainty that suppresses investment and demand. This stagflation risk complicates monetary policy responses, as the Federal Reserve faces challenges balancing inflation control with economic growth support.
The tariffs also disrupt international trade relations and supply chains, potentially spreading inflationary pressures and growth slowdowns beyond the U.S. Fiscal effects include substantial tariff revenues, but with sizable negative dynamic revenue impacts from slower growth, resulting in net gains below headline collections.
Trump has defended the tariffs, stating that "billions of dollars in tariffs are now flowing into the United States of America." However, Georgetown University professor Marc Busch expects US businesses to pass along more of the tariff burden to consumers. Companies and industry groups warn that the new levies will severely hurt smaller American businesses.
The tariff order leaves lingering questions for partners that have negotiated deals with Trump recently. US duties rose from 10% to levels between 15% and 41% for trading partners. Trump has separately targeted Brazil over the trial of his right-wing ally, former president Jair Bolsonaro, with US tariffs on various Brazilian goods surging from 10 percent to 50 percent.
The US has yet to provide a date for reduced auto tariffs to take effect for Japan, the EU, and South Korea. Trump announced a plan for a 100% tariff on semiconductors, but TSMC, a chipmaking giant, will be exempt as it has US factories.
In a recent industry letter, the US Wine Trade Alliance and others urged the sector's exclusion from tariffs, stating that wine sales account for up to 60 percent of gross margins of full-service restaurants. Trump posted on Truth Social that the tariffs are "working out very well" for the U.S. economy.
In conclusion, the increased U.S. tariffs drive up inflation, reduce GDP growth and employment, distort sectoral outputs, and raise the risk of stagflation, while generating mixed fiscal outcomes due to offsetting revenue and economic contraction effects.
The increased tariffs on goods from various trading partners, including India, are expected to have a significant impact on the economy, potentially driving up inflation and reducing GDP growth and employment. These tariffs could affect not only businesses in the targeted industries but also wider sectors, such as the restaurant industry, where wine sales make up a significant portion of gross margins. The tariffs' impact on international trade relations and supply chains could also extend inflationary pressures and growth slowdowns beyond the U.S. Furthermore, the tariffs' disruption of these relationships complicates monetary policy responses, as the Federal Reserve faces challenges balancing inflation control with economic growth support.
