United States: The impact of the increase in tariffs on international trade

The link between customs duties and global trade by taking a bit of historical perspective...

Following the announcements of "reciprocal" tariffs by Donald Trump, the average tariffs paid on American exports are expected to rise to around 25%, the highest level since the beginning of the 20th century.

Trade flows will mechanically decrease. However, it is very difficult to estimate the extent of the decline in these flows, given that there are no examples of such increases in tariffs over the past 50 years. Let us therefore try to take a bit of historical perspective by comparing the evolution of average tariffs on U.S. imports 1) to U.S. imports themselves (as a percentage of U.S. GDP) and 2) to global trade (as a percentage of global GDP) since 1900.

What conclusions can we draw from this?

• There is a very clear negative link between the level of tariffs and both the size of American imports and the extent of global trade over the past 125 years.  
• Global trade is largely... American imports. This is particularly true today, where the American trade deficit represents a very significant portion of global trade imbalances.  
• The increases in tariffs decided in the United States in the early 1920s and 1930s (of 9 and 6 points over 3 years, respectively) led to a decrease in American imports of about 2 percentage points of GDP. Obviously, it should be noted that the historical context of the time was extremely particular.  
• A rule of three, using the increases in American tariffs from the 1920s and 1930s as a comparison base, or a rough regression of American imports on average tariffs (which wouldn't make much sense, given how much the world has changed), would indicate that an increase in average tariffs of more than 20 points (like what is being discussed today) would cause a very significant decrease in American imports (on the order of 4, 5, 6, or 7 percentage points of GDP), not to mention that economic integration at the international level (outsourcing, etc.) is really much stronger today than before the 1980s.  

Even though comparisons with previous historical periods are extremely difficult and should be taken with great caution, they show that the consequences of what was decided by Donald Trump should be very significant. That said, Donald Trump's idea is not necessarily to leave tariffs unchanged in the long term...