Authors: James Giesekcke and Robert Waschik
This paper examines the economic impacts of U.S. tariff increases announced over March-April 2025 using GTAP-FIN, a dynamic global general equilibrium model. We simulate three scenarios: (1) U.S. tariff hikes without retaliation, (2) retaliation by all trading partners except Australia, and (3) retaliation coupled with U.S. fiscal consolidation via tariff revenue. Across all scenarios, U.S. real GDP declines, driven by deep short-run employment losses, long-run capital stock contractions, and persistent allocative efficiency losses. In the no retaliation case, improved U.S. terms of trade raise U.S. real consumption despite output losses. However, this benefit is reversed under retaliation, which lowers U.S. export prices and consumption. Fiscal consolidation amplifies U.S. consumption losses, but mitigates investment declines. Australia is modestly affected, benefiting from improved terms of trade and investment in the retaliation scenarios. For China, heavy tariff exposure results in sustained terms of trade and consumption losses, athough outcomes improve marginally with U.S. fiscal consolidation. Globally, regions most exposed to U.S. tariffs see the sharpest consumption declines, particularly under the no retaliation scenario. The analysis does not capture the heightened investor uncertainty arising from the unclear policy rationale behind the tariffs, suggesting that adverse economic impacts may exceed those estimated in this paper.
JEL classification: F13, F47, C68, D58
Keywords: U.S. tariffs, Trump tariffs, "Liberation Day" tariffs.
*This paper updates modelling reported in CoPS Working Paper No. G-352. It accounts for higher tariffs imposed by the U.S. on imports of Chinese products and the pause on "reciprocal" tariffs.
Working Paper Number G-353 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader.
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