Trump’s Tariffs Take Effect in Fresh Test for Global Economy

Bloomberg Bloomberg Economics

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(Bloomberg) — President Donald Trump’s sweeping new tariffs officially took hold Thursday, as he barrels forward with his turbulent push to reshape global trade. 

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After months of chaotic threats and reversals, higher rates for almost all US trading partners began just after midnight in New York. Trump signed the directive a week ago, but had to allow time for US Customs and Border Protection to make necessary changes to collect the levies.

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Taken together, Trump’s actions will push the average US tariff rate to 15.2%, according to Bloomberg Economics estimates, well above 2.3% last year and the highest level since the World War II era. 

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Following a series of turbulent negotiations, the European Union, Japan and South Korea accepted 15% duties on their products, including key exports such as automobiles which otherwise face a 25% levy. Other countries were simply assigned rates, ranging from 10% to much higher. 

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Some last-ditch efforts by countries to get better deals failed. The Swiss president left Washington on Wednesday without any success in lowering its 39% duty and Trump doubled levies on Indian goods to 50% starting in three weeks as a punishment for buying Russian oil.

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Negotiations on higher levies on goods from three of the US’s biggest trading partners, Mexico, Canada and China, are proceeding on a separate track. Trump has also vowed to unveil soon tariffs on critical industries, including pharmaceuticals and semiconductors.

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The coming months will put the predictions of both Trump and his detractors to the test: that the tariff regime will cause a seismic shift for the US economy.

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Trump has pledged higher levies will slash trade deficits and push companies to move manufacturing back to the US. His critics say they could cause inflation to spiral out of control and cause shortages on store shelves. 

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None of those have yet come to pass, but recent economic data has indicated potential troubles lie ahead as the tariffs set in. 

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July employment figures showed the steepest downward revisions to US jobs growth since the Covid-19 pandemic. US economic growth slowed in the first half of the year as consumers tempered spending and companies adjusted to shifting trade policy. 

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Unemployment remains low and prices have not surged, as companies have so far eaten much of the costs. But some experts say consumers and businesses will end up footing the bill.

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“There are signs that tougher times are around the corner. A lot of companies have been building up inventories before the tariffs went into place,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former US trade negotiator. She argued that it is “almost inevitable that prices increase” because businesses are unlikely to sustain lower margins over the long term.