As stock markets continue to plunge, investors are worried the world could face an economic slump. DW explores the impact of Trump’s tariffs on US, Chinese and world growth.
The rout on global financial markets continued for a third day on Monday (April 7) in reaction to US President Donald Trump’s unprecedented tariffs on most trading partners of the United States.
Investors are growing increasingly nervous about the prospect of a wider trade war, which would likely spark a global recession.
They say the tariffs are poised to have far-reaching effects on world economic growth, due to much higher manufacturing costs that spike inflation, declines in business confidence and investment, market volatility and supply chain disruptions.
With the main US stock indexes set to open much lower later Monday, Trump may have exacerbated further stock declines in Asia and Europe at the start of the week by saying that investors would have to deal with the market sell-off for now.
“Sometimes you have to take medicine to fix something,” Trump told reporters aboard AirForce One on Sunday evening.
Could the global economy fall into recession?
JP Morgan said last week it believes the odds of a global recession are now at 60% by the end of the year, compared to 40% before Trump’s vast array of tariffs was announced.
On Monday, Deutsche Bank warned in a research note that as Trump doubles down, the new tariffs would have “immense global implications for 2025 and the years and decades ahead.”
Asia was hit much harder than Europe with levies of more than 40% on some key countries, prompting the likes of Vietnam, Taiwan and Indonesia on Sunday to seek new trade deals with Washington.
China, which Trump last week hit with an additional 34% tariff is, so far, the only major economy to order retaliatory tariffs on US imports following Wednesday’s announcement.
Beijing on Friday ordered extra levies of 34% on American goods and put export curbs on some rare earths — vital raw materials needed to produce new tech and clean energy products. Those tariffs are due to take effect on Thursday.
India, which now faces a 26% levy on exports to the US, does not plan to retaliate against Trump’s tariffs, Reuters news agency reported Sunday, citing an unnamed Indian official.
New Delhi has been quick to cut some tariffs on US imports. India was one of the first countries to seek a new trade deal with Washington, during a visit to the White House by Prime Minister Narendra Modi in February.
Imports from European Union countries to the US face new tariffs of 20% starting Wednesday. EU finance ministers were meeting in Luxembourg on Monday to weigh their response.
Ursula von der Leyen, president of the European Commission, the bloc’s executive arm, said Sunday that Brussels was prepared to “defend its interests with proportionate countermeasures.” But she also signaled the EU’s “commitment to engaging in negotiations with the US.”
ABN Amro last week halved its economic outlook for EU states, saying it expects the bloc’s quarterly growth to “hover around zero, with a high chance of a negative quarter.”
Some positive news did emerge on Sunday when two Trump advisers told US media that more than 50 countries had been in touch to seek new trade deals with Washington.
Paul Ashworth from Capital Economics said that despite the US president’s defiant rhetoric, Trump would soon realize that he’s gone too far.
“The most likely next step is that Trump will quickly announce a few ‘deals’ that reduce the prohibitive reciprocal tariffs rates on some of the hardest hit countries,” Ashworth wrote in a research note, adding that China “may be the exception.”
JPMorgan Chase CEO Jamie Dimon, meanwhile, wrote in an annual letter to shareholders that “the quicker this issue is resolved, the better because some of the negative effects increase cumulatively over time and would be hard to reverse.”
What about the US economy?
The US economy has averaged nearly 3% growth since the end of the COVID-19 pandemic but now faces what research house Morningstar called a “self-inflicted economic catastrophe” as a result of Trump’s tariffs.
S&P Global raised its probability of a US recession to between 30% and 35%, up from 25% in March. Goldman Sachs, meanwhile, increased the chances of a US recession in the next year to 45%, while Barclays and UBS also warned that the US economy may contract in the next few months.
Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics warned Monday that the US could fall into recession “very quickly” and that it could be “rather lengthy.”
Capital Economics, meanwhile, warned that if Trump is unwilling to make deals with US trade partners, the stock market rout would soon be followed by a “collapse in household and business confidence.”
The UK-based economic research house warned that US inflation could rise above 5% and that the recession would worsen if the US Congress “fails to pass timely fiscal stimulus because of Republican infighting.”
US Federal Reserve boss Jerome Powell last week warned the tariffs would likely cause US inflation to rise and growth to slow. He also mentioned an “elevated” risk of higher unemployment.
Markets are now betting that Powell will soon announce US rate cuts earlier than previously expected.
What do the tariffs mean for China’s growth?
Trump’s tariffs are widely expected to hinder China’s economy, by disrupting export activities and causing substantial market volatility.
Beijing is expected to implement monetary and fiscal measures to offset the additional tariff and the People’s Daily, the Communist Party’s mouthpiece newspaper tried to reassure Chinese readers that “the sky won’t fall … even if the US tariffs have an impact.”
China’s Foreign Ministry on Monday criticized Trump’s tariffs as “economic bullying” and “inconsistent with international trade rules,” urging the US to resolve trade tensions in a mutually beneficial way.
Foreign Ministry spokesperson Lin Jian refused to say whether Chinese President Xi Jinping would seek talks with Trump to resolve the trade war.
Trump has ruled out a deal with China until the US trade deficit with the world’s second-largest economy is resolved.
The Trump administration has defended the punitive tariffs as necessary for correcting imbalances between the US and its major trading partners.
