Inflation, job losses and recession? How Trump tariffs have spooked US and the world

The suspense is over, the uncertainty continues. Donald Trump, on April 2 – what he called “Liberation Day” – announced a slew of tariffs on trading partners, triggering a global trade war. Declaring a national emergency, he slapped 10 per cent tariffs across all countries and reciprocal tariffs for 60 countries, charging them additional duties because they have “cheated” America.

“This is one of the most important days, in my opinion, in American history,” the US president said in a speech at the White House Rose Garden. For decades America had been “looted, pillaged and raped” by its trading partners. “In many cases, the friend is worse than the foe.”

Trump has referred to his historic decision to shake up US trade policy as a “declaration of economic independence”. “It is time for America to prosper.”

However, things are unlikely to pan out as Trump envisioned. The risky move could mean higher prices for US consumers and slow economic growth, warn economists. There is also a growing fear of a recession , not only in the US but also in the world.

What do Trump’s tariffs mean for the US?

For Donald Trump, the tariffs will “liberate” the US by reducing its reliance on foreign goods. The event at Rose Garden was even dubbed as “Make America Wealthy Again”. But world leaders and economists have reservations.

The levies are expected to raise prices on goods worth trillions of dollars imported into the US. The country imported $3.3 trillion of goods in 2024, which is more than $25,000 per household. If the new tariffs work out to an average of 29 per cent, per Evercore, then US importers would have to pay about $1 trillion in tariffs per year or $7,300 per household, reports Axios. However, practically, many goods would not be imported, which could create shortages and raise prices.

The tariff policy could see costs in the US escalating within a month or two. For some products, such as produce from Mexico, prices could rise much more quickly after the tariffs take effect. Cars, clothing and shoes, coffee and wine are among the items that could cost Americans more.

The new tariffs could lead to inflation, which will hurt consumer spending that makes up 70 per cent of economic activity.

According to economist Sam Tombs at Pantheon Macroeconomics, the tariffs would drive the Federal Reserve’s preferred inflation measure from 2.8 per cent to 4.8 per cent. The annual inflation gauge touched a high of 5.6 per cent in 2022 because of pandemic-fuelled product shortages, reports USA Today.

However, Tomb said that the final impact prices could be lower as retailers will absorb some costs and consumers will switch to goods made in the US or those in countries with lower tariffs.

Americans are already cautious – they have cut back on spending, especially discretionary spending like eating out and travelling.

According to Joseph Brusuelas, chief economist at audit, tax and consulting firm RSM US LLP, the tariffs are tougher than what was expected and will raise the probability of a US recession. “I expect inflation into the 3% to 4% range by the end of the year,” he was quoted as saying by Bloomberg.

Ahead of Trump’s ‘Liberation Day” announcement, Goldman Sachs raised the possibility of the US recession to 35 per cent, up from 20 per cent.

Mark Zandi, chief economist at Moody’s Analytics, told NPR, “… in a kind of well-functioning economy, the recession probability should be closer to 15 per cent. So I wouldn’t take any solace in the fact that we’re less than even. And I will say that with each passing day that the trade war continues, those odds of recession will continue to rise.”

Will tariffs lead to a global recession?

The rise in tensions due to tariffs against America’s major trading partners could slow economic activity not only in the US but also across the world.

Global stocks tumbled after Trump’s announcement. China, which is one of the hardest hit by the latest levies, has demanded that the US revoke the measures and threatened countermeasures.

European Commission President Ursula von der Leyen has warned that the tariffs will deal a major blow to the world economy and be “dire for millions of people around the globe”.

The tariffs will hit EU exports to the US. In 2024, the bloc exported €382 billion worth of goods, according to data from the International Trade Centre. Now, Trump has imposed 20 per cent reciprocal tariffs on the EU.

Applying a flat 20 per cent duty could lead to a direct €85 billion decline in exports, hitting the auto and pharmaceutical industries the hardest. Germany, Denmark and central Europe could feel the big impact, reports Euro News.

Goldman Sachs’ economist Giovanni Pierdomenico, who estimated a 20 per cent rise in the duty on EU goods from the current seven per cent, said before the announcement, “We now forecast little growth for the rest of 2025, with non-annualised GDP expansion of just 0.1%, 0.0% and 0.2% in Q2, Q3 and Q4, respectively.”

In the downside scenario, the euro area could slide into technical recession next year, with a cumulative 1.2 per cent GDP loss relative to the no-tariff baseline, the report said.

The UK, which will be hit by a 10 per cent baseline tariff, is also bracing for its impact. The country exported goods worth £60 billion to the US last year, mostly cars, machinery and pharmaceuticals. If the demand for the US falls because of the levies, it could affect profits and lead to job losses.

The Institute for Public Policy Research think tank says Jaguar Land Rover and the Mini factory in Cowley, Oxford, could be most affected. It says more than 25,000 jobs in the UK car manufacturing industry “could be at risk”, with one in eight UK-built cars heading to the US, reports the BBC.

Canada and Mexico , America’s two neighbours, were excluded from the new tariffs. However, they have not got the all-clear. Tariffs have already been imposed on goods from these countries, and auto tariffs will hit them.

Canada will also see a rise in grocery prices. There is also a fear of job losses and possible recession in a country that is already facing a cost-of-living crisis. Mexico will also face similar challenges.

It’s a bleak scenario overall. And economists have sounded a warning.

“Trump’s tariffs carry the risk of destroying the global free trade order the United States itself has spearheaded since the Second World War,” said Takahide Kiuchi, executive economist at Nomura Research Institute.

Under the new global levies imposed by Trump, the US tariff rate on all imports jumped to 22 per cent - a rate last seen around 1910 - from just 2.5 per cent in 2024, said Olu Sonola, head of US economic research at Fitch Ratings. “This is a game changer, not only for the US economy but for the global economy,” Sonola said. “Many countries will likely end up in a recession.”

The only way forward is to avoid a full-blown trade war. That seems unlikely. Trump wants to make America wealthy again, but the chances of his plan backfiring are high_._

With inputs from agencies