This is the biggest surge in US protectionism since the disastrous Smoot-Hawley tariffs of the early 1930s

Donald Trump has referred to tariffs as “the most beautiful word in the dictionary”. And now the US President has unleashed the most aggressive surge in American trade protectionism in almost a century.

Trump’s far-reaching tariff increases, unveiled this morning, set a 10pc “baseline” tax on all imports of goods into the US, effective from Saturday 5th April.

In addition, higher “reciprocal” tariff rates will be imposed on a range of nations that the US President refers to as the “worst offenders” in terms of existing trade barriers against America, including some of the world’s most important economies. These will apply from Wednesday 9th April.

Reciprocal” tariffs on goods exports to the US include a 20pc rate on the European Union, 24pc on Japan, 25pc on South Korea, 26pc on India, 32pc on Taiwan and 46pc on Vietnam.

In a particularly belligerent move, the White House is about to levy a sweeping 34pc tariff on China, on top of the 20pc charge that has applied since earlier this year. So the total tariff on goods sales from the world’s largest exporter to the world’s largest economy overall will be a staggering 54pc.

No new tariffs were announced on America’s near-neighbours Canada and Mexico, after Trump previously set a 25pc rate on all goods entering from both countries, before then announcing some exemptions and delays.

Having previously placed a 25pc tariff on foreign steel and aluminium exports from all nations “without exceptions or exemptions”, the White House this morning added the same 25pc tax on all foreign-made vehicles sold in the US.

On top of that, in a highly significant but so far little-noticed move, the “de minimis loophole” is set to be closed from Friday 2nd May. This currently allows goods worth under $800 to be imported into America duty-free. More than 90pc of all packages entering the US come via this regime, about 60pc of them coming from China.

The big picture is that Trump chose not to go for the nuclear option of a high universal tariff. The 10pc “baseline” tax on foreign-made goods sold in America is lower than many feared – and imports of services into the US have, for now at least, been spared.

This is potentially the biggest upheaval to the global trading regime since the end of the Second World War and looks likely to lead, in the short term at least, to serious retaliation

The reciprocal tariffs are high for some nations, though – despite White House claims, presented in a surreal “game-show-style” table as Trump spoke in the White House Rose Garden, that in many cases new reciprocal US tariffs on specific nations will be at only around half the rate those same nations currently charge on exports from America.

And while Trump is adamant that all these levies are “designed to target unfair trade practices which have disadvantaged the US”, he has indicated a willingness to negotiate with other nations to lower the rates of incoming reciprocal tariffs.

It may be, then, that over the coming days and weeks, some nations are able partially to bargain away taxes on their goods exports to America in return for lowering barriers on sales of US goods in their home markets. And that may, in turn, encourage other nations to do the same, ultimately leading to a global trading environment that ends up being less protectionist overall.

Yet the shock and drama surrounding this latest announcement from the White House, the sharpest hike in US trade barriers since the notorious Smoot-Hawley tariffs of the early 1930s and potentially the biggest upheaval to the global trading regime since the end of the Second World War, looks likely to lead, in the short term at least, to some serious retaliation.

If such behaviour spreads, and becomes entrenched, it could do very serious damage indeed not just to the global economy but to international relations more generally. Future historians would then look back and conclude that Trump’s trade policy had sparked a seriously escalation not just in geopolitical tensions but, potentially, military conflict as well.

 

Trump’s announcement on Wednesday amounts to the biggest change to the global trading regime since the end of World War Two

The world reacts …

The market reaction to Trump’s tariff announcements was almost overwhelmingly negative. Stocks around the world sank as questions swirled about how businesses and households will swallow the cost of sweeping US tariffs, highlighting deepening concerns about a broader global economic downturn. While stocks fell, the price of crude oil slipped below $70 per barrel on expectation that Trump’s actions would hammer growth across the world. The price of gold, meanwhile, seen as a safe haven in times of turbulence, touched a record high.

Shortly after Trump unveiled his new tariff policies, European Union chief Ursula von der Leyen said Brussels is finalising its first response to the 25pc tariffs the US had already imposed on EU steel and aluminium ahead of last night's announcement. Trump’s actions amount to “a major blow for the world economy”, she said, with consequences that “will be dire for millions of people across the globe”.

While Canada was spared additional tax on exports to the US, Prime Minister Mark Carney said it is “essential to act with purpose and with force”. Italy's Giorgia Meloni said US tariffs were “wrong”, warning they would “spark retaliation”.

Japanese automakers braced for a slump in exports, given that automotives account for over 30pc of the country’s total exports to the US. “Japan makes the largest amount of investment in America of any nation”, observed Prime Minister Shigeru Ishiba, promising “a bold and speedy reaction”.

South Korea’s acting president Han Duck-soo vowed an “all-out” response from Asia’s fourth-biggest economy, which exported automobiles made by Hyundai, Kia, GM Korea and others worth $35 billion to the US last year, America accounting for half of the country’s total car exports. “The global trade war has become a reality", said Duck-soo, in light of Trump’s 25pc tariff on all foreign-made vehicles sold in the US.

These US tariffs are “wrong” and “will spark retaliation”, says Italian Prime Minister Giorgia Meloni

The Indian government largely avoided angry rhetoric, as the country’s trade department said it was “carefully examining the implications” of Trump’s announcement while holding talks with domestic exporters. The US trade deficit with India currently stands at a massive $46 billion a year. Trump has indicated the new incoming 26pc tariff rate will remain on the sub-Continent until this “threat” is resolved.

Narendra Modi’s government is now reportedly considering that it may slash $23 billion of Indian tariffs on US imports, including pharmaceuticals and auto parts in a bid to appease Trump, as the two nations continue to negotiate over a broader trade deal.

Taiwan, which supplies almost two-thirds of the world’s semi-conductors, vital to the provision of all kinds of technological goods and services, described Trump’s 32pc tariff as “very unreasonable”, with President Lai Ching-te reminding the US that Taiwan is an “indispensable” member of the global supply chain.

But for weeks, Taiwan has also been trying to appease Trump, with various large semi-conductor manufacturers announcing investments in America and the US Chamber of Commerce in Taiwan urging policymakers in both capitals to “continue fostering this mutually beneficial relationship”.

The Indian government largely avoided angry rhetoric – the US and India continue to negotiate over a broader trade deal

Excepted from the latest proposed tariff increases, Canada still faces previously announced universal levies of 25pc on steel and aluminium exported to America, and potentially automobile parts as well. Prime Minister Mark Carney vowed to “fight these tariffs with countermeasures”, while Trump maintained they are a punishment for not doing enough to stop the flow of fentanyl into the US. Mexican President Claudia Sheinbaum said her country, in contrast, would avoid a “tit-for-tat on tariffs” with the US.

The most important response, though, came from China – which vowed “resolutely” to hit back against the 54pc tariff about to be imposed by the US and “take countermeasures to safeguard its own rights and interests”.

Hardest hit by Trump, Beijing has demanded the US revoke the new measures, described by Chinese state media as “tariff blackmail”. Speculation is swirling not just about steep reciprocal tariffs on the US but other countermeasures too, including an aggressive devaluation of the yuan to maintain the competitiveness of Chinese exports, plus further restrictions on the export of certain rare earths from China to the US, vital in a broad variety of industrial processes.

 

America’s goods deficit with China was $295 billion in 2024, 6pc up on the previous year - with exports to China of $144 billion and imports from China of $439 billion

Impact on the UK

Trump has hit the UK only with the “baseline” tariff of 10pc, rather than 20pc as some had expected. While Downing Street claims this reflects recent efforts by Prime Minister Keir Starmer to mollify the US President, its more likely a reflection of the UK’s relatively benign trade balance with America – with the US generally running a small goods surplus with the UK while Britain registers a counter-balancing surplus in services.

What’s ironic is that Starmer, who campaigned doggedly to reverse the UK’s 2016 Brexit referendum, is now benefiting directly from the fact that Britain is no longer a member of the EU.

The UK, though, still exported nearly £60 billion worth of goods to the US last year, mainly automotives, machinery and pharmaceuticals. If US demand for those goods drops due to extra charges for importers, that could squeeze profits and lead to UK job losses – not least at Jaguar Land Rover and the Mini factory in Cowley, Oxford, given that one in eight cars built in Britain are sold in the US and they now face a stiff 25pc tariff.

The UK’s pharmaceutical industry, the nation’s second-biggest exporter after financial services, also depends heavily on trade with the US, with companies relying on global supply chains that could be heavily disrupted. Aerospace and scotch whisky exports to the US will also be hit.

Relatively light as they are on Britain, Trump’s tariffs will still harm an economy struggling to grow after the serious impact of Chancellor Rachel Reeves’s October budget – which imposed £40 billion of additional taxation each year, while hobbling the economy further with £30 billion more in annual borrowing.

While the Office for Budget Responsibility (OBR) downgraded its GDP growth forecast for 2025/26 from 1pc to 0.5pc last week, as Reeves delivered her Spring Statement, the official fiscal watchdog didn’t take account of the impact of Trump’s tariffs, which had yet to be announced. For a detailed examination of the UK’s fiscal position, see my previous Substack posts here and here.

A further official UK growth downgrade could now happen, at or even before Reeves’s budget statement this autumn, putting the government under enormous pressure from financial markets to impose more fiscal consolidation in the form of further tax rises and/or spending cuts.

Domestic damage

While Trump regained power at last November’s election on a promise to “project strength on the world stage”, US voters may start to resent his tariffs if they lead to much higher prices, provoking inflation and plunging the US back into a nasty cost of living crisis.

Tariffs will almost inevitably push up US consumer prices – not least cars and other manufactured goods – at a time when inflation risks are high. Recent estimates from the non-partisan Peterson Institute for International Economics suggest Trump’s tariffs could cost the average US household around $1,200 (£930) per year by driving up prices faced by domestic consumers and firms.

Trump’s measures enjoy staunch support among the “America First” crowd, as he pursues an aggressive unilateralism requiring other countries, in his words, to “pay to access the American market”.

Yet plenty of industrialists and tech titans, tight-lipped for now, are deeply concerned that tariffs will make important inputs more expensive, disrupting vital supply chains, not only causing inflation but also hindering growth.

Trump’s tariffs will almost inevitably push up US consumer prices – not least cars and other manufactured goods – at a time when inflation risks are high

Consider the 25pc tariffs on steel and aluminium entering the US. The US is the world’s largest importer of steel, counting Canada, Brazil and Mexico as its top three suppliers. Canada alone accounted for more than half the aluminium imported into the US last year.

Trump is keen, of course, to appeal to US steelworkers – symbols of America’s mighty industrial past, a group that traditionally voted Democrat but which has lately been drawn to the President’s Maga movement. But there are fewer than 200,000 steelworkers in the US.

Conversely, there are countless millions working across manufacturing as a whole and also construction – sectors that use lots of steel. So unemployment could actually rise as US firms, many competing internationally, face much tighter margins as the cost of arguably their most vital input soars.

The same goes for the US motor industry – another huge employer, heavily reliant on imported components, not least from Mexico and Canada. That’s one reason Trump has baited and switched when it comes to tariffs on America’s nearest neighbours.

The White House accepts that Trump’s tariffs will exert “some pain” on US consumer but are “the price that must be paid” to protect US jobs and production capacity, especially in basic industries like steel making.

Yet high tariffs on nations including Vietnam and China, hiking the prices of imported clothing and footwear, electronic goods and all kinds of other US consumer favourites, could soon prove deeply controversial. The close of the “de minimus loophole” will hit everything from wildly popular tech imports to fast-fashion.

But the greatest danger of Trump’s tariffs is that they will provoke serious, worldwide retaliation – that proves extremely difficult to reverse. If introduced as advertised, America’s new trade regime would amount to the most serious escalation of US protectionism since the infamous Smoot-Hawley tariffs that saw the Wall Street crash of 1929 morph into the Great Depression that lasted most of the 1930s.

Introduced by two Republicans, Senator Reed Smoot and Congressman Willis Hawley, the raft of tariffs sparked financial panic then a worldwide trade war, arguably helping to cause the Second World War. US unemployment soared from 8pc when the protectionist measures were introduced in 1930 to 25pc by 1933, with global trade flows plunging two thirds over the same period.

 

Seriously? Literally?

“For years, hard working American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense,” said Trump at the White House on Wednesday. “With today's action, we are finally going to be able to make America great again - greater than ever before”.

For now, the US government is holding out the possibility of negotiation with all nations, particularly those subject to America’s new reciprocal tariffs “The President will increase tariffs if trading partners retaliate or decrease tariffs if they take significant steps to remedy non-reciprocal trade arrangements and align with the United States on economic and national security matters,” says the White House.

Meanwhile, China has already hit back on Trump’s previous announcements with a 15pc retaliatory tariffs on US farm products. Observing that “changes unseen in a century are unfolding across the world”, Beijing at the same time announcing that China would again boost its defence spending by more than 7pc, for the second year in a row. “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end,” said the Chinese government on social media.

An all-out trade war between the world’s two largest economies could rapidly escalate, spiralling wildly out of control, going way beyond commercial disputes

It may be, as some suggest, that we should be taking Trump “seriously but not literally”. His “shock and awe” introduction of worldwide tariffs on Wednesday may be an attempt to cajole other countries into doing what he wants, be it on border security, lowering their own trade barriers or other aspects of geopolitics. So we may see some tariffs for a while but, in the end, the argument goes, there will be less protectionism overall.

That may be the case – but at this stage, it looks like a long shot indeed. In any case, even if lowering global trade barriers is Trump’s ultimate intention, his economically illiterate bravado could still do very serious damage in the meantime, killing off countless businesses while unleashing all kinds of financial crises in both equity and sovereign bond markets.

And while the US President thinks he can toy with Canada and Mexico and probably Western Europe too – and he probably can – he should not be toying with China.

Because, as I warned on the Triggernometry podcast last month, an all-out trade war between the world’s two largest economies could rapidly escalate, spiralling wildly out of control, going way beyond commercial disputes and even sparking military conflict.

Liam Halligan is a long serving journalist covering Emerging Markets and economics. He is also columnist at the Daily Telegraph and bne IntelliNews editor-at-large. This comment first appears on this substack here.