'Reciprocal' tariff hikes: Trump hits hard
On Wednesday evening, Donald Trump announced "reciprocal" tariffs, intended to "fair" trade with the United States' main trading partners. These announcements were much harsher than expected.
Published on 3 April 2025
Average import tariffs are expected to rise to around 25%, the highest level since the beginning of the 20th century. This is a major shock to global trade.
By default, tariffs are increased by 10 percentage points for all countries, and 60 countries are subject to a larger increase in addition to their existing tariffs: +34 percentage points for China, +20 percentage points for the EU, +24% for Japan, +25 percentage points for South Korea, and +26% for India.
In the specific case of China, tariffs averaged 13% before Trump's inauguration. They are now around 67%.
Some products are not affected by "reciprocal" tariffs because they are targeted by sectoral tariff increases:
- 25-point increase on steel and aluminum, already in effect,
- 25-point increase on automobiles, already in effect,
- Upcoming 25-point increase on copper, pharmaceuticals, and semiconductors.
The only products truly exempt are bullion, energy products, and raw materials not available in the United States.
What are the economic consequences?
Yale University's Budget Lab has assessed the economic impacts of the Liberation Day announcements, which will be negative for growth and inflation.
They estimate that these reciprocal tariffs will lower US GDP by 0.5 percentage points in 2025, and that all the tariff measures taken in 2025 will lower it by 0.9 percentage points. The total tariff increases in 2025 are expected to cause an average loss of purchasing power of $3,800 per household, with a relatively greater impact on the most disadvantaged households (who will not benefit from a possible income tax cut, and would even be penalized by cuts to Medicaid programs).
In the long term, even if supply chains are expected to adapt to this new situation, US production will be 0.6 percentage points lower than it would have been due to the 2025 tariff measures. The long-term impact on global growth is estimated at 0.2 percentage points.
Among the United States' trading partners, two countries will see their economic growth particularly affected: Canada and China.
The total tariff hikes in 2025 are expected to raise prices by 2.3% in the United States.
The portfolio manager's view
« Donald Trump's tariff announcements are clearly negative for economic activity in the United States and the rest of the world. The resulting deterioration in the labor market should push the Fed to lower rates faster than previously anticipated. For these reasons, we are maintaining our long-duration positions on the European and US markets, which provide protection in the event of a significant deterioration in economic activity. As for the stock markets, after reductions that began a few weeks ago in both the United States and the Eurozone, we are reducing our exposure a little further. »