Global Economy Briefs

Reciprocal Tariffs Will Weaken US and Global Economies

April 03, 2025

US Growth Could be 1.2% Lower in 2025

The White House announced reciprocal tariffs on April 2 against most US trading partners, issuing an executive order and invoking the International Emergency Economic Powers Act and other statutes. 

• The announcement adds a baseline tariff of 10% against nearly all imports into the US, effective April 5. 
• This will be followed by “discounted reciprocal tariffs,” which are higher rates that will go into effect on April 9. These rates are for imports from trading partners whom the Administration considers to be engaging unfairly regarding tariff and nontariff trade policies with the US. 

As a result, base tariff rates will be 20% on goods from the European Union—the largest US trading partner when taken as the full bloc of member countries—and 54% on goods from China. (For details on additional countries, please visit TCB’s Tariff Tracker.)

By the numbers: Our analysis assumes these tariffs would be in place for a year and doesn’t include any reciprocal tariffs on US goods.  

• A hit to GDP: US real GDP growth could be 1.2% lower in 2025 and global real GDP growth 0.5% lower over the same period.
• A rise in inflation: US PCE inflation could be 1 percentage point higher in 2025. 
• An acceleration in unemployment: US employment might decline by 1.1 million jobs by the end of 2025. This would result in the unemployment rate rising to 4.7% by the end of the year. However, existing labor shortages could cap the rise in the unemployment rate.

The TCB take: The Administration has cited the great benefit of forthcoming tariff levies to the federal coffers, but our analysis shows this to be about $460 billion in 2025, and potentially not enough to mitigate economic losses.

Although not inconsequential, $460 billion is a small fraction of the US’ outstanding public debt of $28.9 trillion (97% of GDP)—or the $2.2 trillion annual spend on Medicare and Medicaid. It also only represents a fraction of the $4 to $5 trillion in expected lost revenue over the next decade if the Tax Cuts and Jobs Act of 2017 (TCJA) is extended past its expiration on December 31, 2025.

Implementation of these tariffs will cause weaker growth in both the US and globally, higher inflation, and disruptions to global supply chains. 

Source: The Conference Board estimates using the Oxford Economics model.