When Donald J. Trump championed the idea of a 10 percent blanket tariff during the campaign, many people, whether for or against, were taken aback by how radical the idea was.
Alarms sounded about higher inflation, lost jobs, slower growth or recession. The prospect seemed so outlandish that most economists and Wall Street analysts who gamed out the possibilities tended to treat a 10 percent tariff simply as a bargaining tool.
Now, after a rapid-fire series of announcements from the White House that promised, imposed, reversed, delayed, decreased and increased tariffs, the 10 percent solution is looking like the most temperate choice rather than the most revolutionary, especially now that a red-hot trade war between China and the United States is blazing.
Yet 10 percent tariffs have not lost their sting.
At that level, universal tariffs still hit more than 10 times as many imports as the ones targeted during Mr. Trump’s first term, and are significantly higher and broader than anything the United States has tried in more than 90 years.
The tariff rate is “quite extreme,” said Carsten Brzeski, chief eurozone economist at ING, a Dutch bank. “It still brings us back to levels last seen during the 1930s.”
In addition to measures targeting China, Mr. Trump powered up a long list of punishing taxes — including a flat 10 percent tariff on most imports — on April 9.
“For the U.S. customer, it means everything is going to become more expensive,” Mr. Brzeski said.
Researchers have previously estimated that a 10 percent tariff would cost the average American household $1,700 to $2,350 more a year.
Switching to, say, a cheaper American brand of mustard instead of a French one may save a shopper less than hoped. When tariffs on a foreign good go up, domestic manufacturers can take the opportunity to raise their own prices, economists have found.
Neil Shearing, group chief economist at Capital Economics, said his team reworked its outlook the day after Mr. Trump’s election, assuming there would be a 10 percent across-the-board tariff as well as higher taxes on Chinese and automobile imports.
“It was extreme, but it wasn’t implausible,” Mr. Shearing said. Inflation would rise and output would drop, but the revision did not predict that the United States would plunge into a recession.
Still, the assumptions about tariff levels were considered radical at the time. “I spent two and a half months just talking to clients who said, ‘You can’t seriously think this is going to happen,’” Mr. Shearing said.
Today, with tariff policies threatening to upend the global economy, such a report would be greeted with relief.
Economists and policymakers are still rubbing their eyes in wonder that an American president single-handedly threw the world into such economic turmoil and then celebrated.
Consumer and business confidence has plunged. Uncertainty is paralyzing purchases, from a new home or car to a new factory. Investors have signaled their lack of faith in the U.S. economy by selling off Treasury bonds, the traditional haven when the outlook darkens.
Of course, the conflict between the United States, the world’s biggest consumer, and China, the world’s biggest manufacturer, is overshadowing other measures. Washington and Beijing have hit each other with triple-digit tariffs along with a raft of other trade restrictions on critical items like rare earth minerals, magnets and semiconductors.
Mr. Trump has talked of additional tariffs on chips and pharmaceuticals, while China and countries consider how to retaliate.
The total package of tariffs in effect so far could cause world trade to fall 5 percent this year, according to an estimate from Oxford Economics on Monday. That is comparable to what happened when the pandemic paralyzed commerce in 2020, or the world sank into a recession in 1975.
Such a drop in trade would remove billions of dollars’ worth of goods and services that the world produces, and slice projected overall growth by 1 percent, Oxford said.
China and the United States drive much of the global economy. If their fortunes suffer, so do the rest of the world’s, particularly poor and emerging economies, which will find less demand for their own goods and services.
African countries, for example, do not trade a lot with the United States, but they do sell important commodities like oil and copper. Those prices are dropping as fears of a worldwide recession grow. And that means an oil-exporting country like Nigeria is likely to earn less money, further squeezing government budgets and hampering its ability to repay debts.
A lot of the expected economic damage could have been avoided if the tariffs had not been rolled out in such a chaotic way. If there is a recession in the United States this year, Mr. Shearing of Capital Economics said, that bungled delivery could be what pushed it over the line.
Credits for the video images: Benoit Tessier/Reuters; Erik S. Lesser/EPA, via Shutterstock; Scott Olson and Justin Sullivan/Getty Images; Jim Watson/AFP, via Getty Images; Bryan Anselm, Lianne Milton and Karsten Moran for The New York Times
