Overview of the New Tariff Measures
On April 2, 2025, the US government announced a series of sweeping tariff measures that have a significant impact on international trade and the global economy. These measures include a flat tariff rate of 10% on almost all imports, as well as additional, higher tariffs on certain countries and products. This policy change is aimed at reducing the US trade deficit and promoting domestic production. However, these are not just short-term political signals, but structural interventions with potential global consequences.
Background to Tariff Policy
The new tariff policy imposes flat import tariffs of 10 percent on all goods from 185 countries. In addition, product-specific tariffs will be levied that particularly affect countries such as China, Vietnam, Bangladesh, India and Japan. Particularly striking is the planned 25 percent tariff on automobile imports. These measures represent a fundamental change in the direction of US trade policy: the state plans to shift its revenue structure away from income taxes and towards trade tariffs.
Tweet White House on new Tariffs
The underlying logic: anyone selling in the US should pay for it. This could strengthen domestic companies and disadvantage foreign suppliers. However, critics see this as a massive burden on consumption, companies and international cooperation.
Details of the Tariffs Introduced
The new tariffs will come into force in stages:
- From April 5, 2025: A flat 10% tariff on all imports from 185 countries. (Source: WSJ)
- From April 9, 2025: Additional, country-specific tariffs based on existing trade imbalances. Examples include:
- China: Additional 34%, so 44% in total. (Source: The Guardian)
- European Union: Additional 20%, so 30% in total. (Source: The Guardian)
- Japan: Additional 24%, so 34% in total.
- Vietnam: Additional 46%, so 56% in total.
- Taiwan: Additional 32%, total 42%. (Source: Investopedia)
- India: Additional 26%, total 36%.
- Bangladesh: Additional 37%, total 47%.
In addition, a flat tariff of 25% will be levied on all automobile imports.
Short-term Impact on Financial Markets
Just a few hours after the tariffs were announced, significant distortions were already evident in the financial markets. The share prices of numerous companies plummeted – especially those that rely heavily on international production. For example, the value of a US sporting goods manufacturer that operates over 100 factories in Vietnam fell sharply within a very short period of time, as a 46 percent tariff will now be levied on these imports.
The reaction on the futures markets indicated significant uncertainties early on. Even before the US stock markets opened, the futures of the major indices lost up to four percent. This shows that investors see significant short-term risks, mainly due to increased production costs and potential retaliatory tariffs by other countries.
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Macroeconomic Consequences and Risk of Recession
Leading analysts and banks are very critical of the measures. According to forecasts, the new tariffs alone could generate almost 400 billion US dollars in revenue – which corresponds to about 1.3 percent of the US gross domestic product. At the same time, however, there are concerns that this revenue will be bought at the cost of a significant decline in economic performance.
According to various estimates, the probability of a recession has risen to up to 50 percent. The combination of higher prices, declining purchasing power and reduced corporate investment is considered a dangerous mix. Particularly problematic: consumer spending – the mainstay of the US economy – could decline noticeably in the second and third quarters.
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Inflation Risk and the Risk of Stagflation
Tariffs inevitably lead to higher import costs, which have a direct impact on consumer prices. The result: a new wave of inflation is looming. According to estimates, PCE prices (a preferred inflation indicator of the US Federal Reserve) could rise by 1 to 1.5 percent over the course of the year. When combined with stagnant or declining economic activity, there is a risk of stagflation – a situation in which inflation and economic stagnation occur simultaneously.
Such a scenario is particularly difficult for central banks to handle, as the typical instruments (such as interest rate cuts to boost the economy) could at the same time further fuel inflation.
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International Reactions and Geopolitical Tensions
The affected countries are reacting with sharp criticism in some cases. China announced countermeasures and called for the immediate withdrawal of the US tariffs. Japan is also planning official reactions, while European countries such as Germany expect economic dampening effects. According to Barclays, German economic growth could fall by 0.9 percentage points as a result of the new US tariffs alone.
The risk of a trade war is increasing, especially if further stages of escalation are reached. Retaliatory measures in the form of increased tariffs on US exports could also place an additional burden on the global economy.
Impact on the Monetary Policy of the US Federal Reserve
Economic policy developments have a direct impact on the decisions of the US Federal Reserve (Fed). While interest rate cuts were recently expected, the recent inflation risks could jeopardize this course. According to market analyses, the probability of an interest rate cut at the next meeting is now only 25 percent – despite the tense market situation.
Should inflation continue to rise, the Fed will be forced to refrain from further interest rate cuts. This could make it more difficult to refinance the high US national debt, which this year alone will reach around 9 trillion US dollars.
Long-term Goals and Structural Risks
In the long term, the tariffs are intended to shift production to the United States. The idea is that if imports become more expensive, domestic production will become more profitable again. However, this process cannot be realized in the short term and will not be without side effects.
Products that were previously manufactured in low-wage countries would be significantly more expensive to produce in the US. The higher production costs would be passed on to consumers, which in turn drives up inflation and weakens demand. The desire for tax relief through lower income tax could therefore be offset by higher living costs.
Exceptions and Political Leeway
Not all countries and products are affected equally. Exceptions apply, for example, to Canada, Mexico and certain products such as semiconductors, pharmaceutical products, copper and wood. These exceptions show that there is political leeway – and that economic considerations in individual sectors are to be preserved.
Nevertheless, it is unclear whether the measures represent a rigid system or a tactical means of applying pressure that is deliberately adapted in ongoing negotiations.
Outlook
The introduction of US tariffs marks an economic turning point with far-reaching consequences. In the short term, they will weigh on the economy, increase inflation and intensify geopolitical tensions. In the medium and long term, it remains to be seen whether the goal of stronger domestic production and lower taxes for citizens can really be achieved without jeopardizing economic stability.
The coming weeks and months will be decisive: for the reaction of international trading partners, for inflation trends and for the monetary policy of the United States. One thing is clear: the economic equilibrium has been disrupted – with an uncertain outcome.
Author
Ed Prinz serves as chairman of https://dltaustria.com the most renowned non-profit organization in Austria specializing in blockchain technology. DLT Austria is actively involved in educating and promoting the added value and possible applications of distributed ledger technology. This is done through educational events, meetups, workshops and open discussion panels, all in volunteer collaboration with leading industry players.
Disclaimer
This is my personal opinion and not financial advice.
For this reason, I cannot guarantee the accuracy of the information in this article. If you are unsure, you should consult a qualified advisor you trust. No guarantees or promises of profits are made in this article. All statements in this and other articles are my personal opinions.