Trump announces a universal 10% tariff: what effects will it have on the economy?

For months, Trump has been announcing tariffs on various trade partners, particularly China, Canada, and Mexico, aiming to address the country’s fentanyl crisis. The immigration issue has also come into play in recent months, with the threat of imposing 25% tariffs on Colombia for refusing to accept the landing of two flights carrying deported migrants. Now, the US President aims to reduce the trade deficit, meaning countries with stronger trade ties to the United States will be more affected.

Specifically, Trump has announced a minimum universal tariff of 10% starting April 5, alongside higher rates reaching 50%, as in the case of Lesotho and Saint Pierre and Miquelon, followed closely by Cambodia (49%), Laos (48%), Madagascar (47%), and Vietnam (46%). Sri Lanka and Myanmar will face tariffs of 44%, while Syria will be taxed at 41%. Tariffs on China will rise to 34%, on top of the existing 20% already in place. Meanwhile, tariffs on EU countries will be set at 20%.

The ideological framework behind this offensive lies in the thinking of economist Stephen Miran, former Treasury adviser, whose proposal was coined as the “Miran Doctrine.” Miran advocates for correcting the imbalance caused by a structurally overvalued dollar, conditioning access to the US market based on strategic and national security factors, using tariffs as negotiation tools rather than as ends in themselves, and forcing monetary and regulatory adjustments in countries with unfair practices.

The “2025 Economic and Industry Outlook” report by MAPFRE Economics identifies the tariff war and protectionism as an emerging risk due to the implementation of a new protectionist policy by the United States. “This policy seeks to protect domestic industries from foreign competition. However, the countries affected by these tariffs will likely respond with similar measures, leading to increased trade tensions,” the MAPFRE Economic Research notes.

In the short term, this tariff war would lead to an increase in the prices of many products, as tariffs would be passed on to consumers, and the availability of certain goods could be seriously affected, causing shortages in some sectors. MAPFRE Economics also insists that “it is materially impossible to restore the industrial base in a four-year period without facing numerous challenges.”

“Although the latest announcements provide some additional clarity, uncertainty remains a persistent factor, as evidenced by the fact that certain details were negotiated just hours before the announcement, leaving the door open to further modifications,” says Eduardo García Castro, expert economist at MAPFRE Economics.

For García Castro, the effects of the reconfiguration of supply chains in response to tariffs would lead to a contraction in global trade of US imports by 15% over the next two or three years, especially affecting economies most exposed to the US, such as China, Mexico, Canada, and the EU. In terms of economic activity, global GDP growth could drop to 2.5% in 2025 and by one percentage point in 2026. This could bring it close to the lowest levels since the global financial crisis.

The immediate effect of tariffs on inflation, for its part, involves a certain staggered increase in prices and an upward risk to expectations. However, García Castro emphasizes that this is a dynamic that faces many opposing factors. For example, the effects on the activity itself suggest that deflationary factors could also be triggered, explained by companies and consumers adapting to the new trade framework. In addition, it remains to be seen whether compensatory measures and measures to support domestic demand will also be applied.

“The Liberation Day Tariffs strategy marks the beginning of a new geoeconomic era: The United States is prioritizing industrial sovereignty, strategic control of value chains, and economic pressure as a foreign policy tool. However, the systemic costs could be high: sustained inflation, weakening of global growth, investment paralysis, the breadown of multilateral rules, and growing diplomatic tensions,” says the economist from MAPFRE Economics.

He also points to the Smoot-Hawley Tariff Act, passed in 1930 for protectionist purposes, which led to a 66% drop in world trade between 1929 and 1934, a 61% drop in US exports, and a chain of global retaliations that worsened the Great Depression.

Other risks to the US economy

The impact of a trade war on the US economy is not the only risk for the country. In fact, MAPFRE Economics specifically highlights the country’s financial and debt situation, with a deficit reaching 7% of GDP. The Trump Administration rejects the possibility of raising direct taxes on citizens and plans to generate additional revenue through tariffs.

Furthermore, the increase in government bond yields, which have reached 4.5%, is forcing the Administration to refinance part of its debt at higher rates, which significantly raises the annual debt servicing costs and adds more pressure on the deficit.So far, the behavior of bonds has fulfilled the role of safe haven asset. In fact, the 10-year benchmark has softened to around 4.00%. However, there is a risk of capital outflows also from debt and some dynamics of asset repatriation, which would imply a return to term premium increases and would be indicative of a much broader crisis of confidence.