Global Trade Faces 15% Tariffs, $3.8 Trillion GDP Loss by 2029

The world is on the brink of a significant shift in global trade dynamics, with the era of lower trade barriers and greater economic interdependence fading. President Donald Trump's aggressive trade policies have accelerated this trend, prompting a hypothetical scenario where the world could be divided into three distinct trading blocs led by the U.S., China, and the EU.

The U.S. bloc would encompass most of the Western Hemisphere, along with traditional allies in Asia and the Middle East. China's bloc would include Russia, much of East Asia and Central Asia, top economies in Africa, and a few countries in Latin America and the Middle East. The EU bloc, the smallest of the three, would include the European Union, the United Kingdom, Iceland, Norway, Switzerland, Turkey, and Ukraine.

The roots of deglobalization can be traced back to the geopolitical and economic competition between the United States and China. Recent events, including Trump's tariffs, have raised the possibility of further fragmentation of the global economic order. The European Union, in particular, may pursue its own geopolitical and economic direction, further complicating global trade dynamics.

Economists have sketched out a scenario where each bloc imposes a 15% across-the-board tariff on the other blocs. Using the Oxford Global Economic Model, they estimate that global real GDP would grow by 9.1% between 2025 and 2029, compared to an 11% growth rate under a baseline scenario of free trade. This translates to a loss of approximately $3.8 trillion in GDP over that period, or roughly $1,800 for a typical household of four.

The growth-reducing effects of these tariffs would be most pronounced in the first two years after their imposition, with global GDP never returning to baseline levels during the forecast period. This scenario highlights the potential economic impacts of deglobalization, as the world adjusts to a new era of trade barriers and economic fragmentation.