Trump Announces 10% Tariffs on 60 Countries, US GDP Growth May Drop 1%

The US economy is bracing for the largest tariffs in over a century, as President Trump announced a blanket tariff of 10% on a wide range of goods from approximately 60 countries. This tariff is roughly half of the "total sum of all unfair trade practices," as calculated by the Trump administration. The effective tariff rate is estimated to be around 22.5%, which would be the highest it’s been in a century. Other estimates suggest that the tariffs could be as high as 26.5% to 30%.

The Trump administration's method for quantifying these tariffs involved a simplistic estimation of the country’s trade deficit divided by its exports. This approach, while straightforward, lacks depth and consideration for the complexities of international trade. The administration then decided that the reciprocal tariff would be half of this estimated number, which is not as forgiving as it may seem.

The economic impact of these tariffs, if implemented, is expected to be significant. According to the Budget Lab, US real GDP growth in 2025 is projected to be 0.9% to 1.0% lower due to the tariffs. In the long term, the US economy is expected to be permanently 0.3% to 0.6% smaller, equivalent to an annual loss of $90 billion to $180 billion in 2024 dollars. Global GDP is also projected to shrink in the long run, although China’s GDP is expected to remain largely unaffected.

Prices are expected to rise significantly in the short term, with the price level on all goods increasing by 2.1% to 2.6%. This translates to a per-household consumer loss of $3,400 to $4,200 in 2024 dollars. Food prices, in particular, are projected to increase by 3.7%, nearly double the recent grocery inflation rate. These projections do not even consider potential retaliation from other countries, which could exacerbate the economic impact.

Economists have compared the potential impact of these tariffs to that of oil shocks, which have historically led to recessions. Neil Dutta of Renaissance Macro has moved up his implied probability of recession to 89%, highlighting the severity of the situation. While there is hope that cooler heads will prevail and the tariffs will not be implemented as announced, the uncertainty and volatility in the market are expected to continue.

The administration's approach to calculating these tariffs and the potential economic fallout have raised concerns about the lack of thought and consideration given to the complexities of international trade. The simplistic estimation method and the decision to impose such high tariffs have been criticized for their potential to cause significant economic harm. The market, as a whole, seems to be in denial about the potential impact of these tariffs, hoping that cooler heads will prevail and the situation will be resolved without significant economic damage.