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October 2025
In March 2025, the Acamar Journal had an essay on tariffs (Tariffs Part I), which sought to explain why such unprecedented tariffs were being imposed. It has been several months since, so here is an update.
In 1987, President Ronald Reagan warned about the effects of tariffs: “High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars. Then the worst happens. Markets shrink and collapse, businesses and industries shut down and millions of people lose their jobs.”
Congress has the right to set tariffs. President Trump used an emergency power to set tariffs. This has been challenged and a federal court ruled that he has no authority to set tariffs. The case is headed to the Supreme Court.
The President called the decision “highly partisan” and said it “would literally destroy the United States of America.”
The tariff rate overall was 2.5% before Trump imposed tariffs. It is now estimated to be an average of 18.5% across all countries.
This has created significant anger among many countries, where jobs have ben lost and supply chains disrupted.
India was also pressured to not buy oil from Russia (Europe still gets 19% of its natural gas from Russia). When India pointed that out, its tariffs were increased from 25% to 50%!
What will be the likely effects of these tariffs?
Economic: Businesses and consumers both hate economic uncertainty as it impairs their ability to make investment or purchase decisions if they feel that the economy might slow or slide into recession. The economy contracted by 0.9% in Q1 but rebounded to 3.3% growth in Q2.
However, job growth has slowed considerably, with 911,000 fewer jobs added by March than previously estimated. Job growth slowed to a crawl in May, June and July. In August, just 22,000 jobs were created and 45,000 in September in the US, well below expectations. Trump fired the head of the Bureau of Labor Statistics, so the numbers may improve going forward (?). The projected GDP growth rate for 2025 is now estimated to be negative 0.9%.
And the Tax Foundation expects tariffs to raise $ 210 billion, mostly from consumers in the form of higher prices by the end of the year, which equates to 9% of all personal taxes and 40% of corporate taxes.
The inflation rate in September was 2.7%.
Consumers expect the inflation rate to rise to 4.7% due to tariffs and job losses and consumer sentiment is 21% lower than at the same time last year.
What also happened during the tariffs in the first Trump term was:
- As the prices of imported goods rose, domestic producers arbitrarily raised their prices to increase profits because their competing imported products got more expensive
- The tariffs raised the price of steel, which made all products that used imported steel more expensive
- US exports suffered as countries retaliated with both retaliatory tariffs and bans. For example, China stopped all imports of American soybeans and wheat, which caused the administration to pay out $ 28 billion to farmers to compensate for their losses.
In 2025, China has again stopped all soybean imports from the US (China consumes 61% of all soybeans produced globally). Soybeans are America’s top agricultural export.
US Debt: The US has a very privileged position in global trade. Companies ship real goods to the US, which pays them in US dollars, which it can print in whatever quantity it wants. These countries then recyle surplus US dollars into the US, funding US deficits by buying US debt as well as US equities.
The tariffs jeapordise this very favorable situation. If countries do not export as much to the US, they will have less dollars to send back to the US. Foreign countries own about 22.9% of total US debt in 2024 ($7.9 trillion), down from 33% in 2014. So the trend is already declining and may accelerate as US debt keep growing (it was $ 1.83 trillion in 2024).
The tariffs have made the US an unpredictable partner for the US’s allies and adversaries, which will reduce their desire to buy US debt and equities. There is real anger towards the US as these unprecedented tariffs have led to jobs losses around the world.
Less demand for US Treasuries from foreign buyers could lead to rising interest rates as the US would have to attract replacement buyers for its bonds by raising yields. And it may also force the US to cut spending, leading to more cuts to social programs, which would be very unpopular.
You can see the effect on the US$ already. Since the inauguration, the US dollar index has declined from 106.5 to 97.26, down almost 9%.
Political: The large and blanket tariffs have been highly disruptive for global trade. Canada, the US’s largest trading partner, is now looking to do trade deals with Europe and Asia, to diversify its exports. Japan and South Korea, traditional US allies against China, have been trying to do a trade deal since 2002, but this has now been given real impetus with these US tariffs.
There was a summit of the Shanghai Cooperative Organisation (SCO) in China in August, which was attended by the heads of states of 25 countries (representing half of humanity). Attending were the Presidents or Prime Ministers of China, Russia, India, Egypt, Iran, Indonesia, Malaysia, Turkey, Pakistan and other countries.
President Xi’s address showed how China was leading the charge to reshape the global power and trade structure. He said, “the “shadows of Cold War mentality and bullying have not dissipated, with new challenges mounting.” The world has entered “a new phase of turbulence” with global governance at a “new crossroads,” Xi said, calling for joint efforts to build a “more just and balanced international governance framework.”
The chaotic and massive increase in US tariffs has brought the rest of the world together to find new trading partners and reduce reliance on an increasingly unpredictable US. This could have very significant negative impact for US global influence.
Utilising tariffs can be a useful tool for countries that put trade barriers or their own tariffs as protectionist tools. But blanket and constantly changing global tariffs on all countries (a minimum of 10%), including on all allies, is a blunt instrument that will have long term negative effects for the US.
- Reshoring: In 1979, US manufacturing employment reached an all-time peak of 19.6 million high paying jobs. Then US corporations started to ship millions of these jobs to low wage countries, causing a devastating impact on US workers and their communities. The US middle class shrank from 63% of the population to 50% now.
One of the objectives of tariff policy is to bring manufacturing jobs back, which would be good for US workers. According to a survey by the Hartford Business Monitor, 39% of businesses with overseas operations are considering this to some degree, to ensure control over supply chains in an increasingly turbulent world.
The challenge is that it may take a very long time (decades, according to some experts) before a meaningful number of jobs can be brought back, due to a need for massive investment to do so.
Then businesses would also face higher labour and infrastructure costs in the US compared to existing overseas operations.
And finally, the US already faces a 2.1 million shortfall in manufacturing jobs to 2030 (which will be exacerbated by the deportation of illegal workers). So reshoring looks to be a very challenging endeavour.
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