The global economic effects of Trump's 2025 tariffs

This paper explores the implications of President Donald Trump's so-called Liberation Day tariffs on the US and global economies under five alternative scenarios. As he continues to change his tariffs daily, the paper starts with a snapshot of two plausible, core, tariff scenarios based on his recent comments—one with high tariffs and one with low tariffs. The paper then considers two more scenarios in which other economies retaliate to the high or low US tariffs by imposing matching tariffs on US exports. The fifth scenario includes high US tariffs with retaliation plus a rise in the risk of holding US assets. This increase in risk causes a depreciation of the US dollar similar in scale to the shifts seen in the week following the Liberation Day tariffs announcement on April 2, 2025. The paper starts by exploring the details of the changes made to the original tariff announcements from April 2 to May 10. This is particularly important for understanding the tariffs on Canada and Mexico, which were substantially reduced during the period through exemptions under the United States-Mexico-Canada Agreement (USMCA). The authors find the tariffs significantly reduce US and global economic growth and increase inflation in many economies, depending on how countries respond. However, the outcomes are less severe than the original April 2 announcements implied. Many exemptions and tariff adjustments have been made since then for particular goods and countries. Retaliation by other countries worsens the economic losses, and inflation increases. The tariffs disproportionately hurt the US agriculture and durable manufacturing sectors by reducing output and employment and increasing prices. Finally, in the fifth scenario, the falling dollar and higher longer-term interest rates accentuate US losses in employment and income as foreign capital flows away from the United States to other countries. A more complete set of results for most countries and regions can be found in the online dashboard (https://documentation.gcubed.com/gcubed/version/6G/scenarios/McKibbin_Noland_Shuetrim_2025a/). The Peterson Institute for International Economics has no partisan goal in publishing this research. Our objective is to educate policymakers and the public about the effects these policies would have on Americans and other people around the world.