Here's how Trump's tariff policies stand to impact the global economy

New president-elect Donald Trump has proposed several new policies, including one that involves establishing tariffs on countries around the world. However, many economists are worried about the subsequent impact on the United States and the global economy.

China is one of the countries that Trump has specifically mentioned increasing tariffs on. During his first term, Trump enacted tariffs of between 7.5%-25% on imported Chinese goods. Now, he plans to increase them to 60%. An increase in tariffs could have a strong impact on the Chinese economy, especially as they are in a more vulnerable position. During Trump’s first term, the Chinese property market was strong, accounting for about 25% of China’s GDP.

However, from 2021 to 2023 and the first 9 months of 2024, property sales and investments fell in China. This has caused the government in China to face unsustainable levels of debt; the International Money Fund estimates China’s total government debt and household and corporate debt to be about 3 times the size of the economy. Even as debt increases, household spending in China has fallen below 40% of GDP, 20% below the global average. Because of these factors, increasing tariffs on Chinese goods could be more of a bargaining chip against China, who could have a harder time affording higher prices on goods. 

Trump has also said he will impose tariffs of up to 100% on Mexican goods. This would have significant impacts on the Mexican economy, as 80% of their exports go to the United States. According to William Jackson, Capital Economics’ Chief Emerging Markets Economist, Mexico is likely the most exposed major economy to tariffs. Specifically, Trump has planned up to a 200% tariff on vehicles imported from Mexico. As the car industry represents 5% of Mexico’s GDP, almost 90 billion, this could have devastating implications on both the Mexican economy and potentially higher inflation in the United States.  

However, the United States could experience substantial negative impacts of new tariffs. According to a group of economists surveyed by Vox, American families could lose $900 as a result of the proposed tariffs. Tariffs on Mexican goods would impact the car, tech, and beer industries in America. When companies face tariffs, they usually raise prices to cover the costs. Tariffs specifically impact low-income families, as they are the least able to afford rising costs. As cars and car parts account for one third of goods imported from Mexico, the U.S. automotive industry would be significantly hurt. Direct imports from Mexico and China would be impacted, and supply chains would be disrupted in hard-to-predict ways, potentially raising the prices on lots of unforeseen products. If American companies struggle more due to higher costs of inputs, they could begin to lay off U.S. workers, undoing any positive effects of the tariffs. 

One of the arguments in favor of increasing tariffs would be that it would help reduce the United States' trade deficit with China. While this would help strengthen the U.S. dollar, which would reduce imports, it would also reduce American exports as our goods would be more expensive, resulting in a net neutral benefit. Trump argues that an expansive tariff policy could generate a new revenue stream for the U.S. government, potentially compensating for reductions or eliminations of certain income taxes, while also extracting funds from competing nations. According to the nonpartisan Tax Foundation, a 10% universal tariff could bring in $2 trillion in revenue for the federal government from 2025 to 2034, while a 20% tariff could generate $3.3 trillion. Overall, however, many U.S. economists believe that implementing tariffs would hurt ultimately hurt American consumers.