• The U.S. has raised average tariffs to approximately 18%, potentially generating $450 billion annually—a sharp increase from $77 billion in 2024, according to RBC BlueBay.
  • The policy aims to reduce the federal fiscal deficit to just under 7% of GDP next year, though economists warn of long-term GDP contraction and consumer price hikes.
  • Retaliatory tariffs from trading partners like China, Canada, and the EU threaten to escalate trade tensions, with global GDP growth at risk of declining by up to 1%.

A Historic Shift in Trade Policy

The U.S. has implemented one of the largest tariff increases in recent history, impacting 71% of all goods imports—excluding certain categories like those from USMCA partners and some energy imports. The move, part of a broader protectionist push by the Trump administration, includes a universal 10% tariff and higher reciprocal rates for countries with significant trade deficits with the U.S., effective April 2025.

Mark Dowding, CIO of RBC BlueBay, noted that while the tariffs could bolster federal revenues, the economic trade-offs are substantial. "This is a double-edged sword," he said. "Short-term gains in revenue may be offset by long-term drags on growth."

Economic and Sectoral Fallout

Initial estimates suggest the tariffs could raise consumer prices by 1.8% in the short run, with a projected 0.4% contraction in U.S. GDP over the long term, according to the Budget Lab at Yale. Sectoral impacts are uneven: nonadvanced durable goods manufacturing could grow by 3.8%, while construction (-3.5%), agriculture (-0.9%), and mining (-1.3%) face declines as resources shift.

Business sentiment has already weakened, with J.P. Morgan Global Research warning of recession risks if uncertainty persists. "The tariffs are a tax on households and supply chains," said one retail executive, who requested anonymity due to the sensitivity of the topic. "We’re bracing for higher costs and potential job losses."

Global Retaliation and Fiscal Trade-Offs

Trading partners have responded aggressively. China, the EU, and Canada have imposed or announced tariffs affecting $330 billion of U.S. exports, with Canada enforcing a 25% tariff on $30 billion of U.S. goods since March 2025. These measures could further strain global trade, potentially reducing worldwide GDP growth by 1%.

While the tariffs may shrink the U.S. fiscal deficit, the Budget Lab at Yale projects that $456 billion in lost economic output-related revenue could offset gains. "The math isn’t as simple as it seems," said one analyst. "You can’t tax your way to growth without consequences."

Correction: An earlier version misstated the projected GDP contraction as 0.5%; it is 0.4%.