Recession risks loom over the world due to US countervailing tariffs

Speaking in the White House Rose Garden on April 2, US President Donald Trump announced a 10% tariff on all imports and held up a chart illustrating higher rates for some major trading partners, including 34% for China and 20% for the European Union.

Other major US trading partners will be subject to higher rates of up to 50%, effective from April 9. In particular, with China, combined with two previous additional tariffs, the new tax rate announced by Washington will increase the import tax on Chinese goods to the US to 54%.

President Trump said he was taking action to bring hundreds of billions of dollars in new revenue to the US government and restore fairness to global trade. "Taxpayers have been ripped off for more than 50 years. But it won't happen again," he said.

To do so, Mr Trump declared a national economic emergency, promising that “jobs and factories will come flooding back to our country.” But he also acknowledged that the reciprocal tariffs risked triggering a sudden economic downturn as consumers and businesses could face sharp price increases.

With the new tariffs, the average tariff rate on all imports into the US has risen to 22% - the highest since 1910 - compared with just 2.5% in 2024, according to Olu Sonola, head of US economics research at Fitch Ratings.

"This is a turning point, not only for the US economy but also for the global economy. Many countries could fall into recession," Sonola said.

US Representative Gregory Meeks, the top Democrat on the House Foreign Affairs Committee, said that Mr. Trump had just imposed the largest tax increase in modern history on Americans. "His reckless policies have not only caused the market to crash, but they have also severely harmed working families," Meeks said.

Looking ahead, the most obvious impact of the new tariffs will be higher prices and reduced demand for thousands of goods for consumers and businesses around the world.

"I see the US and world economies drifting into a state of less efficiency, more instability and possibly heading towards a global recession," said Antonio Fatas, a macroeconomic expert at INSEAD business school in France.

Barry Eichengreen, professor of economics and political science at the University of California, Berkeley, said the impact would not be limited to the United States. "The U.S. economy is so large and so deeply connected to the rest of the world through trade and capital flows that other countries cannot help but be affected," he said.

The impact on individual economies will vary, with tariffs ranging from 10% for the UK to 49% for Cambodia. If the moves lead to a full-blown trade war, the consequences for manufacturers like China will be even more severe as weakening global demand forces the country to seek new markets.

If the US falls into recession due to reciprocal tariffs, it will have a heavy impact on developing countries - economies that are closely linked to the US market. "Mr. Trump's tariff policy risks destroying the global free trade order that the US has led since World War II," said Takahide Kiuchi, chief economist at Nomura Research Institute.

The knock-on effects for policymakers at central banks and governments could also be significant. Inflation risks running hotter than central banks’ 2% target, complicating monetary policy.

For example, the Bank of Japan (BOJ) may face pressure to raise interest rates to curb inflation. The export-dependent economy will also suffer from high tariffs imposed by the US.

Auto exporters such as Japan (subject to a 24% tariff) and South Korea (subject to a 25% tariff) have signaled the implementation of emergency measures to support businesses affected by the US tariff hike.

Or, for example, China’s economic slowdown could exacerbate weaknesses in its financial system, especially in the property sector, which has yet to show signs of a solid recovery, according to Reuters. That could force Beijing to roll out more policy measures to support growth, even if that increases the debt burden in some sectors of the economy.

Slowing growth in many economies will make it harder for governments to service a record $318 trillion global debt and meet a range of priorities from defense spending to social welfare.

In its semi-annual Financial Stability Report completed before the reciprocal tariffs were announced, the Reserve Bank of Australia (RBA) noted that US trade policy uncertainty, along with possible retaliatory measures, risked undermining business and household confidence.

“Vulnerabilities in key international financial markets could be triggered, leading to chaotic price adjustments (in financial assets such as stocks, bonds, currencies and commodities),” the RBA warned.

And if the reciprocal tax still does not bring the targetWhat about the policy that Mr. Trump has repeatedly emphasized as promoting investment in domestic production in the US? Especially when this economy is almost at full employment, with the labor shortage becoming increasingly evident.

Some experts predict that Mr. Trump may seek other ways to eliminate the US trade deficit, such as requiring countries to adjust their exchange rates in a way that benefits US exporters.

"We are likely to continue to see Mr Trump introduce potentially more risky measures to counter the strength of the US dollar," said Freya Beamish, chief economist at investment strategy firm TS Lombard.

Such moves could threaten the US dollar's privileged status as the global reserve currency, although this scenario is unlikely, largely because there is currently no real alternative to the greenback.