How does Donald Trump’s reciprocal tariff policy trigger a world recession and hit the U.S. economy?
U.S. exports are worth $31.916 billion, but it imports products at $4.11 billion, absorbing a $9184 billion trade deficit in 2024. In 1975, the United States won an overall trade surplus.
As the U.S. current account deficit declines in 2024, President Donald Trump announced a mutual tariff system that could affect 180 countries. From the Australian territory of Norfolk Island, with a population of 2,000, zero exports to China, a population of 14.1 billion, and a value of $400 billion to Washington, no country is spared. From the UK’s minimum basic tariffs of 10% to the effective tariffs in Beijing, Donald Trump puts enough sand under the wheel of the world economy.
Why does Donald Trump impose reciprocity tariffs?
U.S. exports are worth $31.916 billion, but it imports products at $4.11 billion, absorbing a $9184 billion trade deficit in 2024. In 1975, the United States won an overall trade surplus.
Trump’s philosophy of reciprocity tariffs is based on the belief that trading partners will be forced to cut tariffs on U.S. goods by their respective countries, and tariffs in the United States will make the domestic industry more competitive. This will kickstart the rejuvenation of the U.S. economy and make it the production center of the world. The U.S. economy will attract a lot of investment and create more jobs.
Will we become the world’s manufacturing center?
Really? Since the United States is a consumer, consumption exceeds the consumption it generates and is expected to stay so fast soon, the trade deficit will continue to dominate the U.S. economy.
Second, because the U.S. will never be able to reduce its input costs compared to other economies like China because of its very high labor costs. Third, the capitalist structure of the entire economy does not allow the state to provide subsidies such as cheap electricity like India or China.
Unlike the United States, some other countries also enjoy the advantage of cheap raw materials. These factors have made the U.S. economy unshakable from a production perspective and prohibited from being different from China.
Who will pay for the increase in tariffs?
The increased tariffs will be paid by U.S. consumers, increasing the cost of the product and the money will be donated to the U.S. Treasury Department. It will increase inflation, and U.S. citizens will have to pay more and their living standards will be lowered.
With increased inflation and low disposable income, lower purchasing power will put pressure on the U.S. economy, resulting in further no competition.
The United States will lose its shine as an investment destination. Commercial companies may choose to cancel investment and turn to greener pastures such as China, India, Vietnam or Latin American countries. This will begin to decline in the country.
Is the recession shrouded in us?
However, the U.S. economy may suffer the most. Experts believe that in the second and third quarters of 2025, true disposable income may shrink, which may lead to simultaneous contraction of consumers. On the other hand, personal consumption expenditure will increase by 1% to 1.5% this year.
Inflation of personal consumption expenditure (PCE) could soar to 4%, the highest since spring 2023.
More and more economists warn that the U.S. could fall into recession due to increased tariffs. Goldman Sachs raises its chances of a recession next year to 35% based on a predicted 15% tariff.
Michael Feroli, chief economist at JPMorgan Chase, said in a conversation with Forbes that Donald Trump’s new policy would “put the economic danger close to falling into recession.”
He shared many shocking economic data forecasts based on the new tariffs. Ferroly also said Trump’s speech was a “very hawkish-headed” of the tariff announcement that he made a lot of jokes.
Reciprocal tariffs: Impact on China
The U.S. recession will certainly affect the world economy, which may push further. Considering that it exports $400 billion worth of products to the United States, China is the largest source of goods in the United States.
Experts believe that China’s GDP is estimated to be US$17.79 trillion, with a growth rate of 5.2% in 2023. Its growth rate is 5%, and its estimated GDP is $18.80 trillion in 2024.
Experts believe that China may reduce its GDP by 50 basis points, which could result in a loss of $940 billion.
How will India be affected?
India is estimated to lose 60 basis points in its GDP. India’s GDP is estimated to be around Rs 184,88 crore, with a real semester of US$2.164 trillion. Affected by the reciprocal tariff regime, its GDP may drop by $12.98 billion.
Reciprocal tariffs: Impact on the EU
EU exports account for 15% of global exports, while its imports account for 14%. After the U.S. imposes a 20% tariff on 27 member groups, it is believed its GDP may be reduced.
The GDP of EU member states reaches 17.935 trillion euros or 19.908 trillion US dollars in 2024. It is expected to hit 18.30 trillion euros or 20.29 trillion euros in 2025.
Since its export charge is 20%, it is most likely that it will be estimated to be 30 basis points. The total GDP of EU member states may fall by $60.87 billion.
