US President Donald Trump’s recent economic policies have sent shockwaves through the global financial markets, leaving investors and policymakers scrambling to reassess their positions. With the stroke of a pen, the tariffs he has imposed on Canada, Mexico, and China have effectively undone decades of economic integration, bringing the world back to a time when protectionism and trade barriers were the norm. Trump’s rhetoric insists that tariffs are a “beautiful” thing, promising job creation and economic prosperity for the United States. However, a closer look at the history of trade wars reveals that those who initiate such conflicts often suffer considerable losses themselves. Contrary to Trump’s claims, it is American consumers who are bearing the brunt of these policies.
The tariffs on imported goods mean that American consumers are now facing the highest level of import taxes since the 1930s. Products from all over the world—such as vegetables from Mexico, wheat from Canada, and everyday items like toys and T-shirts from China—are all subject to these new tariffs. For many retailers, especially those operating with narrow profit margins, the result is inevitable: higher prices. To maintain profitability, businesses will pass the increased costs onto consumers, meaning that shoppers will soon feel the sting at the checkout counter.
Grocery bills, in particular, may rise, which could prove problematic for President Trump’s own electorate, many of whom rely on affordable goods. With inflation already running higher than expected in the US, economists predict that it could continue to rise in the second half of the year as a direct result of these tariffs. While Trump insists that the trade war is a necessary price to pay to “Make America Great Again,” the reality is more complex, and a cautionary tale can be found in the history of his tariff policies.
Take the case of washing machines, for example. In 2018, Trump imposed tariffs of up to 50% on imported washing machines after Whirlpool, an American manufacturer, complained about the competitive threat posed by South Korean companies like Samsung and LG. In response, those foreign companies set up manufacturing plants in the US, creating nearly 2,000 jobs. While that may seem like a positive outcome on the surface, the hidden cost is significant. By the start of 2023, the price of an imported washing machine had risen by nearly a third compared to five years earlier, before the tariffs were implemented.
The increase in washing machine prices was not just an inconvenience for consumers—it was a financial burden. A study conducted to assess the long-term effects of the tariffs concluded that the cost of creating each of those 2,000 jobs was around $800,000, a sum that could have been used for other forms of economic stimulus, such as tax cuts or infrastructure investment. The US government certainly benefited from the tariffs, with revenue from these duties increasing sharply over the past few years. However, the net result has been a form of taxation on American households, as they are ultimately the ones who foot the bill. According to some estimates, this could amount to as much as $300 per household annually. While the government may have gained revenue from the tariffs, it is the average American consumer who is paying the price.
Beyond the impact on consumers, there are also significant repercussions for American manufacturers who rely on cross-border trade. Many businesses have operations in Canada, Mexico, and China, and the tariffs have disrupted these supply chains, increasing costs and creating uncertainties. Economists estimate that the cumulative effect of these policies could result in a reduction in US GDP of up to 1%. While this may not be enough to cause an outright recession, it is still a notable blow to the US economy. And while the US economy can weather this hit, countries like Canada and Mexico may suffer more deeply.
Canada, which exports more than $400 billion worth of goods to the US every year, relies heavily on trade with its southern neighbor. Around a fifth of Canada’s national income comes from these exports, so any reduction in demand will have a significant impact on its economy. Fortunately, Canada has some tools at its disposal to mitigate the damage. With healthy public finances and a central bank capable of lowering interest rates, policymakers in Canada have room to maneuver and cushion the blow. However, this will not be the case for all countries affected by Trump’s tariffs.
Mexico, for example, faces a smaller hit to its national income, but its central bank has fewer options for responding to the economic fallout. With less flexibility to cut interest rates, Mexico may struggle to alleviate the pain caused by these tariffs. And while Mexico may be able to absorb some of the damage, it will still feel the pressure from the reduced demand for its exports to the US.
Perhaps the most anxious eyes are on the European Union, which could soon find itself in the crosshairs of Trump’s trade policies. Germany, in particular, is vulnerable, as it accounts for about a third of the EU’s exports to the US. Any increase in tariffs on German products could have serious consequences for the EU’s already fragile economy. While the EU has the potential to adjust, much like Canada, the economic toll could still be significant.
Interestingly, China’s position may be less precarious than many assume. While the US has imposed tariffs on Chinese goods, China’s exports to the US make up less than 3% of its national income. This means that China can more easily absorb the effects of these tariffs by shifting its trade to other markets. In fact, much of China’s resilience can be attributed to the trade diversion that occurred during Trump’s first term. Faced with punitive tariffs, China simply sought out new markets and found new buyers for its goods. This strategic pivot has lessened the impact of the trade war on the Chinese economy.
In a twist of irony, this trade diversion could work to the benefit of countries outside of President Trump’s direct line of fire. The UK, for example, could see some benefits from the shifting global trade patterns. With China finding new markets and the EU potentially facing greater tariffs, the UK could seize an opportunity to increase its exports to the US and gain a more favorable position in the global supply chain. Additionally, as some companies look for new places to invest, the UK could become an attractive destination for foreign direct investment, especially if it proves to be a more stable and predictable environment than some of its competitors.
However, it is important to recognize that the UK’s fate in this global economic landscape is far from certain. While it could benefit from trade diversion and increased investment, much will depend on the broader political and economic context, including the ongoing negotiations surrounding Brexit and the UK’s future trade relationships with other countries. The uncertainty surrounding these issues could undermine any potential advantages that might arise from Trump’s tariffs.
Looking ahead to 2025, the prospects for global growth appear to be dimming. While a recession is not yet on the horizon, the lingering uncertainty created by Trump’s trade policies and other geopolitical factors is weighing on business confidence. As companies around the world hesitate to make key investment decisions, the global economy faces the risk of slower growth and fewer opportunities for job creation. The long-term effects of Trump’s trade war are still unfolding, and it remains to be seen how they will shape the future of the global economy.
In conclusion, the uncertainty generated by President Trump’s tariffs is taking a toll not only on American consumers but on economies around the world. While there may be some winners in the form of countries that can capitalize on trade diversion, the overall impact of these policies is likely to be negative. As businesses and consumers alike face higher costs and more economic instability, it is clear that the trade war initiated by Trump is a high-risk strategy with uncertain outcomes. Ultimately, the true cost of this approach may be paid by those who are least prepared to shoulder it: ordinary citizens and small businesses.
