BREAKINGVIEWS-State fiscal aid is harder call in 2025 than 2020

By Jennifer Johnson

LONDON, April 16 (Reuters Breakingviews) - U.S. President Donald Trump’s tariff chaos is resuscitating a Covid-era support system. Like March 2020, markets are wildly fluctuating, and governments are discussing relief for companies at the sharp end of a big shock. But this crisis will prove trickier for politicians to navigate, not least because the tariffs themselves are a moving target.

Back in 2020, state interventions didn’t come cheap. The IMF estimated that the fiscal support measures announced as of September 11, 2020, were worth a total of $11.7 trillion – or nearly 12% of global GDP. Many advanced economies logged additional spending equivalent to more than 10% of their economic output during the pandemic.

This time around governments are not afraid of their healthcare systems being overwhelmed but are concerned about the knock-on effects of tariffs on critical industries and jobs. Canada, Portugal, South Korea and Spain have unveiled some sort of fiscal support package designed to help exposed industries manage the impact of tariffs. But the sums involved pale in comparison to their Covid-19 responses. Portugal last week said it had earmarked 10 billion euros ($11 billion) in aid for exporters, or slightly more than 3% of last year’s output of $303 billion. Spain is readying 14 billion euros for tariff-hit sectors. Meanwhile, Canada has made it easier for workers to claim unemployment benefits and enabled hard-hit firms can defer income tax payments – a move equal to 40 billion Canadian dollars in liquidity support.

How and when these support systems will be deployed depends on the outcome of negotiations with an erratic Trump administration. If the U.S. president digs his heels in and reinstates tariffs at their “Liberation Day” levels, some countries and export sectors face an existential threat. But this pain will be spread out. Researchers at Capital Economics reckon that if duties on most countries outside China stay at 10%, and retaliation from other nations remains limited, it will only shave off 0.4% of global GDP within two years.

But even if the damage is far more extreme than anticipated lawmakers may be reluctant to step in with the kind of generous schemes that were commonplace in 2020. That’s because they’re still paying the bill from the last crisis. Though debt in advanced economies had fallen back to 109% of GDP in 2024, from an all-time high of 122% in 2020, it's still above the pre-pandemic level of 103%.

Still, one advantage governments have in this budding crisis is time. The decision to impose lockdowns and cobble together worker relief systems was taken virtually overnight against the backdrop of an escalating public health crisis. This time around governments can spend months deciding how and when they will help different sectors. But even with this head start, the pain of the tariff crisis will unfold over many years.

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CONTEXT NEWS

Spain and South Korea announced support measures, on April 3 and April 7 respectively, which are designed to prop up their economies in the face of the Trump administration’s new tariff regime.

Spain is prepared to offer its hardest-hit firms almost $16 billion – with economy minister Carlos Cuerpo urging other European countries to follow suit. On April 10, Portugal unveiled an $11 billion package of loans and other relief measures.

South Korean lawmakers have earmarked up to $68 billion to support businesses and financial markets.

U.S. President Donald Trump said on April 9 that he had authorised a 90-day tariff pause, with all countries except China now subject to a 10% levy.