“Reciprocal” tariffs are bad for world growth and worse for the US

Last week, the Trump administration announced tariffs against the entire world which, added to those of previous weeks, will raise the average external tariff of the United States to 22%, compared with 2.5% at the end of 2024. Financial markets have reacted extremely badly, and suggest even more serious fears for US growth than for global growth. Many unknowns remain, but this scenario is the most plausible. For the United States' trading partners, it would be better to resist the temptation to escalate and instead to double down on strengthening the engines of domestic growth. Europe is particularly well placed to do this.

Let’s recapitulate the key facts: after imposing ad hoc tariffs on Canada, Mexico and China, and 25% tariffs on all steel and aluminum imports, as well as on automobiles, on April 2 President Trump announced tariffs on the entire world (minus Belarus, Cuba, North Korea and Russia) ranging from 10% for the lucky ones to 49% for Lesotho. Contrary to what their official name suggests, these tariffs are not reciprocal but simply based on the size of the US bilateral trade deficit relative to imports. Together, these measures raise the average tariff on US imports to around 22%, from 2.5% at the start of the second Trump mandate (and 1.7% at the start of his first). Less than 20% of all US trade is now Trump-tariff-free. Poor countries and Asian countries are hit hardest, in particular China, whose exports to the US will now be taxed at 74% (potentially rising to 99% if the 25% tariffs on importers of Venezuelan oil are activated. See chart 1).

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