Trump's tariff war could cost world $1.4 trillion, raise prices in US by 5%, finds analysis

US President Donald Trump’s reciprocal tariffs could wipe out economic activity worth $1.4 trillion across the world and raise prices and damage GDP in the United States substantially, according to an analysis.

Trump is set to start the roll out of reciprocal tariffs on Wednesday (April 2). He has pitched it as the ‘Liberation Day’, but there is fear and fatigue as nearly all economic indicators are grim: the stock markets are down, the consumer sentiment is at a four-year low, and economists have warned of a realistic risk of recession.

An analysis by England’s Aston Business School has found that a full-scale trade war trigerred by Trump’s tariffs could cost the world $1.4 trillion in lost economic activity, raise prices in the United States by 5.5 per cent, and reduce the US economy by 1.3 per cent.

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At least in the short run, tariffs are certain to prices in the United States. In the medium to long run, the inflation is expected to turn into a recession or stagflation as consumer consumption, industrial production, and business investment would fall as a result of higher prices and job losses.

US to experience substantial decline from tariff war, finds analysis

While Trump’s tariffs are going to ransack other economies, the US economy is not going to be unaffected by the tariff war.

In a scenario in which nations and blocs like the European Union (EU) retaliate to Trump’s tariffs, the US economy would experience "substantial decline" as exports would fall by 66.2 per cent, imports would fall by 46.2 per cent, welfare would fall by 2.5 per cent, and prices would increase by 5.5 per cent, according to the analysis.

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Overall, the US GDP is expected to fall in the scenario by 1.34 per ent.

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Among other economies, Canada is expected to lose 32.6 per cent exports and overall GDP of 2.7 per cent; Mexico is expected to lose 35 per cent in exports and overall GDP of 3.7 per cent; Germany to lose 0.3 per cent in GDP; and the United Kingdom to lose 6.9 per cent exports and overall GDP of 0.28 per cent.

These results underline the significant negative global economic consequences of comprehensive tariff escalations and retaliatory measures, note the authors of the analysis.