Global: “Reciprocal Tariffs” Could Reshape the World Economy
2025-04-11
Following the United States' announcement on April 2 of new tariffs—including both uniform and country-specific measures—on multiple countries, concerns have grown over a potential stagnation in global economic activity. Financial markets have responded with heightened volatility. These tariffs largely align with President Trump's campaign promises. However, the calculation of country-specific tariffs for 60 countries and regions significantly deviates from the average tariff rates set by the World Trade Organization (WTO). Imposing disproportionately high tariffs on trading partners—far above the United States’ rates—marks a clear departure from the originally promoted idea of "reciprocal tariffs." Furthermore, the legal basis for these tariffs, the International Emergency Economic Powers Act (IEEPA), grants the U.S. President broad authority to alter them unilaterally, greatly reducing policy predictability. Although tariffs on countries other than China were suspended for 90 days in an announcement on April 9, as long as President Trump's decisions can unilaterally change the course of trade negotiations, sustained stability in financial markets remains unlikely.
If the “reciprocal tariffs” are implemented as initially proposed, the United States’ average tariff rate (which was 2.5% in 2024) could exceed 20%, surpassing the 1933 peak of 19.8% following the Smoot-Hawley Tariff Act of 1930. This suggests that the current situation may be reaching a critical, once-in-a-century turning point. Although the Smoot-Hawley Tariff Act aimed to protect domestic industries, it led to retaliatory measures from other nations and escalated into a full-scale trade war. History shows that such protectionism and the resulting decline in global trade severely reduced U.S. agricultural and manufacturing exports, ultimately worsening the Great Depression.
From the standpoint of economic welfare, the U.S. strategy of addressing trade imbalances by raising barriers is likely to disrupt the efficient allocation of global resources. While the administration hopes to revive domestic manufacturing through higher tariffs, structural limitations—such as relatively high labor costs—will likely prevent these industries from becoming truly competitive with emerging economies. Over time, these limitations are expected to produce increasingly negative effects. Global economic restrictions appear inevitable under this policy, and the longer they persist the higher the risk of a global economic contraction (i.e., a recession). In the short term, economic indicators may reflect temporary effects, such as panic buying ahead of tariff implementation and subsequent demand slumps. These fluctuations could obscure the underlying economic trends. Nevertheless, it is crucial to assess the scope, scale, and transmission mechanisms of the policy’s impact on global economic activity.
If the “reciprocal tariffs” are implemented as initially proposed, the United States’ average tariff rate (which was 2.5% in 2024) could exceed 20%, surpassing the 1933 peak of 19.8% following the Smoot-Hawley Tariff Act of 1930. This suggests that the current situation may be reaching a critical, once-in-a-century turning point. Although the Smoot-Hawley Tariff Act aimed to protect domestic industries, it led to retaliatory measures from other nations and escalated into a full-scale trade war. History shows that such protectionism and the resulting decline in global trade severely reduced U.S. agricultural and manufacturing exports, ultimately worsening the Great Depression.
From the standpoint of economic welfare, the U.S. strategy of addressing trade imbalances by raising barriers is likely to disrupt the efficient allocation of global resources. While the administration hopes to revive domestic manufacturing through higher tariffs, structural limitations—such as relatively high labor costs—will likely prevent these industries from becoming truly competitive with emerging economies. Over time, these limitations are expected to produce increasingly negative effects. Global economic restrictions appear inevitable under this policy, and the longer they persist the higher the risk of a global economic contraction (i.e., a recession). In the short term, economic indicators may reflect temporary effects, such as panic buying ahead of tariff implementation and subsequent demand slumps. These fluctuations could obscure the underlying economic trends. Nevertheless, it is crucial to assess the scope, scale, and transmission mechanisms of the policy’s impact on global economic activity.