Michelle ThompsonUS President Donald Trump’s latest decision has unsettled investors—and for good reason.
With a single signature, the tariffs imposed on Canada, Mexico, and China have effectively reversed 70 years of globalization.
Trump describes tariffs as a “beautiful word,” associating them with job creation and economic prosperity for the US.
However, history suggests that initiating a trade war often results in significant economic harm for all involved. Despite the president’s assurances, American consumers are the ones most affected. These additional taxes have pushed tariffs on imported goods to their highest levels since the 1930s.
Everyday products such as Mexican vegetables, Canadian wheat, and Chinese toys and clothing are now subject to these tariffs. Retailers, already operating on thin profit margins, will likely pass on the added costs to consumers.
Shoppers will feel the impact through rising prices.
Although Trump frequently talks about groceries, his voter base may not welcome the potential increase in household expenses. Even without further tariff hikes, economists warn that US inflation—already surpassing expectations—could climb even higher in the latter half of the year.
A necessary sacrifice “to make America great again”? The answer might lie in an unexpected place—the laundry room.
In 2018, during his first term, Trump introduced tariffs of up to 50% on imported washing machines following complaints from American manufacturer Whirlpool about cheap South Korean competition.
As a result, companies like Samsung and LG established factories in the US, generating nearly 2,000 jobs.
But at what expense? By early 2023, just before the tariffs were removed, American consumers were paying almost 30% more for imported washing machines than they had five years earlier.
One study estimates that when factoring in tariff-related costs, each new job created under this policy effectively cost American consumers over $800,000 (£627,000).
While these tariffs generated revenue for the US government, the financial burden ultimately fell on American households—equivalent to an estimated tax increase of up to $300 per household. This trend has continued, as many of Trump’s tariffs on China were upheld under President Joe Biden.
Additionally, American manufacturers with operations in Canada, Mexico, and China have been affected, with economists estimating up to a 1% reduction in US economic growth—not enough to trigger a recession but still an unwelcome slowdown.
Canada’s economy may face an even larger impact due to its heavy reliance on trade with the US, which accounts for over $400 billion in exports annually—a fifth of its total income. However, Canada has more flexibility to lower interest rates and utilize strong public finances to mitigate economic fallout.
Mexico’s economy, while less exposed, has fewer options for reducing interest rates, making it harder to cushion the impact.
Meanwhile, the European Union is closely monitoring the situation, as it could be the next target of Trump’s tariffs. Germany, already facing economic challenges, represents about one-third of EU exports to the US, making it particularly vulnerable.
Ironically, China—the primary target of Trump’s trade policies—may be better positioned to withstand these pressures. US exports account for less than 3% of China’s national income, allowing it to offset losses by expanding into other markets.
This adaptability is, in part, a consequence of Trump’s previous tariffs, which pushed China to diversify its trade relationships.
Countries like the UK might also benefit from these shifting trade dynamics, gaining better access to more affordable goods—potentially helping to control domestic inflation.
Trade wars do not produce only losers—some nations gain from diverted trade flows. For instance, Vietnam and Malaysia experienced rapid export growth during Trump’s last term as they replaced China in supplying goods to the US.
If the UK remains unaffected by Trump’s policies, it could strengthen trade ties with the US and attract more foreign investment by offering greater stability compared to competing markets. However, the UK’s future in this scenario remains uncertain.
As things stand, global growth projections for 2025 have weakened, though a recession still seems unlikely. However, Trump’s unpredictable policymaking means that future developments remain uncertain.
This ongoing uncertainty is dampening business confidence, delaying crucial investment and job creation decisions both in the US and globally.
Even within the US, using uncertainty as an economic tool comes with its own consequences.
