Trump tariffs take on the world

Handelsbanken Insights Blog

By Johan Löf, Head of Forecasting

Published: 16 April 2025
Reading time: Three minutes

After promising tariffs in his presidential campaign, markets were waiting anxiously for President Trump to unveil the details. As our Head of Forecasting, Johan Löf sets out below, there were certainly surprises.

The initial big announcement came from the White House Rose Garden on Wednesday April 2. It was a bigger and more aggressive package of tariff prices than anticipated, bigger than economists and pundits had been thinking about in in the months leading up to this event, and also bigger than markets had been pricing in in various asset classes.

So what was the actual package?

Well, first of all, there was a minimum 10% universal tariff on all imports to the US except on imports from Canada and Mexico which are part of the North American trade agreement, the USMCA.

But then we had the so-called reciprocal tariffs which meant that more than 70 countries around the world had even higher tariffs put on them than this baseline 10%. So this — together with the roughly 70 percentage points additional tariff that the US later added to China’s 54%, and the 25% sectoral tariffs on for example steel, would take the overall tariff level of the US up to about 30%.

But on 9 April the White House budged and paused the reciprocal slice of the package, except on China, after US bond market turbulence was driving government funding costs even higher. Many different scenarios remain, but at the time of writing we have about 24% import tariffs in the US, which is the highest for more than 100 years.

Birds-eye view of ship on water and containers on dock

Trump actions sidestep Congress

So what does the US Congress have to say about all of this? Normally, if you want to strike a big trade agreement like the US with Canada and Mexico, those things need to go through Congress. But here to avoid having to do that, the president has a variety of executive powers that he can use - if he frames them in certain ways.

Remember that on day one President Trump ordered government authorities to start investigating trade practices, including non-tariff trade barriers. And he also instructed his authorities to come up with measures against anything they decided was wrongdoing.

This plan came into fruition on April 2 when he signed an executive order to put in place tariffs because he felt that he had the foundation; the investigation was there, he could show that there is a need for an economic emergency executive order.

For other areas, the tariffs we've heard about on for instance steel and aluminium and also on autos, he uses a different type of executive order which relates more to national security. Here he’s saying ‘we need US production of these things, otherwise we can't guarantee national securities, we can't provide for our defence’.

Tariff consequences

Since I started writing this, President Trump has backtracked on his plans, pausing introduction of the higher tariffs (ie those above 10%) — except those on China. The 10% baseline tariff however is still in place, and the uncertainty of his actions from one day to the next is feeding markets’ anxiety.

So unsurprisingly, collectively, these actions are going to have major implications for the global economy, as international trade will be hurt, households will cut consumption and businesses put off investments. Partly as a direct result of the tariff rises, partly because economic activity tends to be hampered by the sheer uncertainty of situations like this.

One of the things we've seen already has been a big correction in US stock market prices. And what we call the wealth effect is going to have an additional impact on the average US household who's going to see the value of their savings and pension fund falling away.

The big question is whether the US is at risk of going into recession? We think so, and have consequently revised down our macroeconomic forecasts. The level of tariffs is the biggest tax hike in the US in the post World War II era, and it directly translates to a couple of percentage points on GDP, assuming that no-one changes their behaviour. What’s worse is that a shock of this size risks spiralling.

Of course people will change their behaviour, they will buy fewer foreign goods.

But on the other hand, this isolation of the US will hurt its innovation capacity and its efficiency in use of the economy’s limited resources. Households will feel worse off. So they will start saving more potentially rather than spending.

What could happen over the coming weeks?

The worst outcome would be if the current volatility leads to financial markets more or less grinding to a halt. For instance when firms that need funding for their business can't get funding — a credit crunch.

For now that that's not what we're seeing.

If we have a recession coming, then we should expect central banks to cut rates at least partly to mitigate the blow, however they’re already under the opposite pressure because of the too persistent inflation problem.

Will Trump’s tariffs affect the UK?

Unlike many other countries, the UK’s balance of trade with the US is fairly even and that has been reflected in the less aggressive tariffs he’s put on the UK.

However the UK is also subject to a 25% tariff on cars — our second biggest export to the US.

So obviously if you export cars, you're going to get hit dramatically, but overall we think the tariff impact will be fairly limited. However, the issue is that the UK economic outlook was already on the weak side to begin with – we’re predicting growth of under 1% for this and next year.

While we felt the need to update our macro forecasts after the tariff shock, there is much to contemplate in the coming weeks (our next full Global Macro Forecast report is due 21 May), and it’ll be a while until we get proper economic data that we can use to actually track the impact. Until then, expect a lot of speculation and close scrutiny of markets to gauge the impact while we’re flying in the dark.

Talking about Trump Tariffs

Listen to our experts share their insights on a special episode of our Handelsbanken Insights Economic Update podcast.

Trump tariffs podcast