BREAKINGVIEWS-Trump tariffs tip world into trade war abyss

By Gabriel Rubin

WASHINGTON, April 2 (Reuters Breakingviews) - Donald Trump is pushing the global economic order to the breaking point. Unveiling new tariffs on Wednesday, the president said that he was being “kind” by only raising levies to half the level that his administration reckons peers place on U.S. imports. Consumers, businesses and world leaders are unlikely to feel much tenderness. Starting at 10% for all nations but rising higher for a bewildering array of trade partners – including 34% for China, 20% for the EU and 26% for India – they bring U.S. trade duties to their highest rates since the Great Depression. Top trading partners Canada and Mexico will be subject to their own bespoke regime. The stated twin goals of raising trillions in revenue while forcing manufacturing onshore are irreconcilable, complicating any last-minute attempts to negotiate a climb-down. In the meantime, the damage will be significant.

The measures Trump announced at a “Liberation Day” event in the White House Rose Garden came as a shock even after prior broadsides. According to Fitch Ratings, the effective U.S. tariff rate on all imports will now be 22%, up from 2.5% last year and matching levels last seen in 1910. Agricultural producers, automakers, the U.S. Chamber of Commerce and labor unions warned of the potential economic damage from new trade barriers. They were not heeded.

Indeed, the litany of grievances – from straightforward tariffs on U.S. goods to poultry regulations to sales taxes, resulting in a confusing calculation of other nations' supposed levies – raises the stakes. Yet, despite Trump charging that the U.S. had been systematically disadvantaged by a postwar order that it helped to mold, blowing it up will likely tip his own country into recession unless he backtracks quickly.

A worst-case scenario outlined by Moody’s sees 20% tariffs causing unemployment to peak at 7.3% in early 2027, from 4.1% in February, with stock markets declining by one-quarter over the same period. Such a tariff on top of those already imposed would cost the average U.S. household at least $3,400, according to the Yale University Budget Lab. Consumers and businesses are already spooked: the share of respondents in Friday’s University of Michigan consumer sentiment survey that expect higher unemployment over the next year rose to 66% in March, the highest reading since the financial crisis.

Perhaps the U.S. won’t know what it had until it’s really gone: Chinese buyers are stockpiling Brazilian soybeans rather than American ones, and Canada is strengthening its military and economic partnership with Europe. China, South Korea, and Japan are coordinating their responses. U.S. consumers account for as much as 14% of total world imports with just 4.2% of the world’s population, according to U.S. Trade Representative and World Bank figures, so the pull of its market will remain strong. And the broadness of the policies that Trump considers to be illegitimate tariffs could draw partners to the negotiating table with a laundry list of offered tweaks to receive leniency.

But the grander domestic vision leaves little room for budging. The president's aide Peter Navarro said that tariffs will raise $6 trillion, a key fillip given a yawning budget deficit. Yet Trump also envisions them forcing manufacturers around the world to move to U.S. shores, thereby avoiding payments. How fellow nations can thread the needle of satisfying all these competing motives is unclear, threatening a far more durable crisis.

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CONTEXT NEWS

U.S. President Donald Trump said on April 2 that the United States would impose a 10% baseline tariff on all imports and higher rates on many of the country's biggest trading partners.

While calling the duties “our declaration of economic independence” during an announcement in the White House Rose Garden, Trump held up a poster listing some of the individual rates, including 34% on China, 20% on the European Union and 46% on Vietnam, as a response to levies imposed on U.S. goods.

The baseline 10% tariff is set to take effect on April 5, according to a subsequent statement from the White House, and the higher rates will start on April 9.

The president is also planning other tariffs targeting semiconductors, pharmaceuticals, and potentially critical minerals, a White House official, speaking on condition of anonymity, told Reuters.

Mexico and Canada, two of the largest U.S. trading partners, were not included on the newly released list, but already face 25% tariffs on many of their goods.