Tariff dispute instigated by the US and Donald Trump, escalating into a trade war – now into an economic war: Forecasts and consequences
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Published on: April 9, 2025 / Updated on: April 9, 2025 – Author: Konrad Wolfenstein
A tariff dispute initiated by the US and Donald Trump has escalated into a trade war – now into an economic war: Forecasts and consequences – Image: Xpert.Digital
The US-led economic and trade war: An analysis of the policy, impact and geopolitical consequences (2018-2025)
A turning point in global trade
The years 2018 to 2025 mark a period of profound upheaval in the global economy. What began as a supposed “trade war” has evolved into a complex conflict that extends far beyond tariffs and trade balances. Under the banner of “America First,” the United States, under the Trump administration, pursued an aggressive economic policy characterized by a departure from multilateral agreements and a shift toward unilateral measures. This policy was partially continued under the subsequent Biden administration and experienced a massive intensification under a second Trump administration in 2025.
The current situation far surpasses in its complexity and impact the problems caused in 2021 by the six-day blockage of the Suez Canal by the container ship Ever Given or by the COVID-19 pandemic. Compared to the present situation, those crises in global logistics seem almost harmless and manageable.
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Global supply chains in transition: Long-term consequences of protectionism
The consequences of this policy are far-reaching and affect not only the economies involved but also the entire global order. Increasing tensions, disrupted supply chains, declining economic growth, and the erosion of the multilateral trading system are just some of the effects we are witnessing today. It is therefore crucial to comprehensively analyze the causes, mechanisms, and consequences of this policy in order to understand the challenges and make informed decisions for the future.
The Global Risk Report, along with other analyses of the recent trade and economic wars initiated by Donald Trump and his administration, paints a bleak picture of the global economic situation. Here are the key findings:
Impact on the global economy
- According to the CEPII Working Paper, the trade war, triggered by drastic tariff increases, will impose significant costs on the global economy by 2030. Global GDP could decline by 0.5%, while world trade could fall by 3.4%. The US and China are particularly affected, with a projected GDP decline of 1.3% each.
- Fitch Ratings forecasts a slowdown in global economic growth to 2.3% by 2025, significantly below the trend. The US itself could achieve growth of only 1.7% due to the increased tariffs.
Strategic changes in trade policy
- Trump's trade policy is based on a protectionist strategy that prioritizes national security and economic independence. This includes increased tariffs on strategic goods such as cars, steel, and aluminum, as well as export controls.
- The introduction of so-called "reciprocal tariffs" has led to retaliatory measures by other countries, further exacerbating the economic losses for the USA.
Long-term risks
- The Global Risk Report highlights that this phase of the trade war is promoting the fragmentation of global supply chains and financial systems. This could jeopardize globalization in the long term and complicate technological decision-making.
- Furthermore, the increased tariffs in the US could lead to an increase in consumer prices, lower real wages and stifle investment.
The trade and economic wars initiated by Trump are having far-reaching negative consequences for the global economy. While some countries, such as Canada and Mexico, may benefit in the short term, the measures are leading to a weakening of international trade and increased uncertainty for businesses worldwide. The Global Risk Report warns of the long-term consequences of these policies, particularly regarding the fragmentation of global systems and geopolitical tensions.
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Anatomy of US Trade and Economic Policy (2018-2025)
US trade and economic policy since 2018 can be described by a number of key characteristics:
Unilateralism
A departure from multilateral agreements and a preference for bilateral agreements or unilateral measures.
protectionism
The use of tariffs and other trade barriers to protect domestic industries.
Techno-nationalism
Linking technological innovation with national security and economic competitiveness.
Economic state policy
The use of economic instruments to pursue foreign policy and geopolitical objectives.
Key US measures: tariffs, export controls and investment screening
The US government employed a variety of instruments to achieve its economic policy goals. Among the most important were:
Customs duties
Aggressive use of tariffs on imports: Overview
The US imposed a variety of tariffs on imports from various countries, particularly China, using different laws and justifications. These tariffs targeted both strategic economic sectors and national security and trade deficit concerns. The following summarizes the key measures:
1. Section 301: Customs duties on Chinese goods
- Introduction: Originally launched in 2018 with the aim of responding to intellectual property theft and unfair trade practices in China.
- Expansion (2024):
- Affected sectors: electric vehicles, semiconductors and medical goods (strategic industries).
- Scope: 382 tariff categories with an annual trade value of approximately 18 billion US dollars.
- Measures: Increased tariffs and broader coverage.
2. Section 232: National Security Tariffs
- Introduction: Tariffs were already levied on steel (25%) and aluminium (originally 10%, later 25%) in 2018.
- Changes (2025):
- Resumption and expansion: Previous country and product exemptions have been largely eliminated.
- Additional duties: A special duty of 25% was levied on imported automobiles and car parts.
3. IEEPA: Use of the International Emergency Economic Powers Act
The law grants the president extensive powers in national emergencies and has been used several times to justify tariffs:
a) Fentanyl/border security (2025)
- Tariffs on Canada and Mexico:
- Introduction: February 2025.
- Amount: 25% on imports (later partially suspended for USMCA-compliant goods).
- Tariffs on China:
- Introduction: Initially 10%, later increased to 20%.
b) Reciprocal tariffs (trade deficit emergency, 2025)
- Introduction: April 2025, due to a declared national emergency related to the trade deficit.
- Measures:
- Base tariff rate: 10% on almost all worldwide imports (from April 5th), with exceptions:
- Canada and Mexico.
- Certain countries (Belarus, Cuba, North Korea, Russia).
- Goods already burdened by Section 232 or other measures.
- Higher individualized tariffs: Introduced from April 9th, they varied between 11% and 50%, depending on the country.
- Examples:
- EU: 20%.
- China: 34%.
- Examples:
- Base tariff rate: 10% on almost all worldwide imports (from April 5th), with exceptions:
- Chinese retaliation and escalation:
- Following retaliatory measures by China, the effective tariff rate for China was cumulatively increased, reaching up to 104%:
- 20% Fentanyl-Intense.
- 34% reciprocity duty.
- 50% retaliatory duty.
- Following retaliatory measures by China, the effective tariff rate for China was cumulatively increased, reaching up to 104%:
US tariff policies increased economic pressure on strategic trading partners and addressed specific problems such as unfair trade practices, national security interests, and the trade deficit. However, these measures also led to global trade conflicts and retaliatory measures, particularly from China.
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Export controls
The tightening of export controls, particularly against China, aims to restrict access to advanced technologies, especially in the semiconductor sector. The goal is to hinder China's military modernization and the development of artificial intelligence (AI) capabilities. This includes controls on semiconductor manufacturing equipment (SMEs), software tools, high-bandwidth memory (HBM), and the inclusion of Chinese companies on the Entity List.
Investment reviews
Intensification of investment review
The review of investments will be tightened for both inbound and outbound investments.
Inbound (CFIUS – Committee on Foreign Investment in the United States)
- Objective: Increased scrutiny of Chinese investments in strategic sectors within the USA:
- technology
- Critical infrastructure
- Healthcare
- Agriculture
- energy
- Trend:
- Preference is given to blocking transactions over complex mitigation agreements.
- Particularly strict measures apply to investments by Chinese investors.
Outbound (“Reverse CFIUS”)
- New regulations: Restrictions on US investments in Chinese companies in the following sectors:
- Artificial Intelligence (AI)
- Semiconductors/Microelectronics
- Quantum computing
- Possible sanctions:
- Application of the **International Emergency Economic Powers Act (IEEPA)** to restrict US investments.
- Goal: To prevent the financing of the Chinese military-industrial complex by US capital.
The US is strengthening its control mechanisms for both Chinese foreign investment in the US and US investment in strategic Chinese sectors. The aim is to safeguard national interests and restrict resource flows into security-critical areas.
Trade war vs. economic war: A necessary distinction
The terms “trade war” and “economic war” are often used synonymously, but describe different aspects of the global tensions triggered by US policy.
A trade war typically refers to a conflict in which states impose tariffs and other trade barriers to influence trade flows, protect domestic industries, or correct trade balances.
Economic warfare
In contrast, a more comprehensive concept involves the strategic use of economic instruments – such as sanctions, financial aid, investment restrictions and export controls – to pursue foreign policy and geopolitical objectives.
Current US policy exhibits features of both concepts:
Elements of a trade war
The massive use of tariffs against a large number of countries, especially China and the EU, with the stated aim of reducing trade deficits and protecting domestic industries, as well as the subsequent retaliatory tariffs by other countries.
Elements of an economic war
The strategic use of export controls to curb China's technological progress in key areas such as semiconductors and AI, as well as the tightening of inbound and outbound investment controls to limit the flow of capital and technology, clearly serve overarching geopolitical and national security objectives. The linking of trade policy to national emergencies (fentanyl, economic security) under the IEEPA further underscores the nature of economic state policy.
The US strategy, particularly in its dealings with China, is therefore more than just a trade war; it represents a form of hybrid conflict. While traditional trade wars primarily rely on tariffs and trade barriers to influence trade flows or protect domestic industries, the US government has employed significant non-tariff instruments in addition to extensive tariff measures. These include, in particular, strict export controls on high technology and restrictions on investments, which are specifically designed to limit China's strategic capabilities.
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Economic impacts: Global and national consequences
The trade and economic conflicts initiated by the USA have profound effects on the global economy and on the economies involved.
Global growth and world trade under pressure
The escalation of trade conflicts and the associated uncertainty are significantly impacting global economic growth and international trade. International organizations and research institutes have attempted to quantify these effects, with forecasts consistently pointing to negative consequences.
Forecasts
Global macroeconomic forecasts under the influence of trade conflicts:
1. CEPII (Centre d'Études Prospectives et d'Informations Internationales)
- Forecast:
- Global GDP could fall by 0.5% by 2030.
- World trade could decline by 3.4%.
- Scenario:
- US tariffs: 60% on China, 10% on other countries.
- Consideration of retaliatory measures.
2. Fitch Ratings
- Forecast:
- Global GDP growth in 2025: 2.3% (previously: 2.6%).
- 2026: 2.2% (still weak).
- Reason:
- Trade war, initiated by the USA.
3. International Monetary Fund (IMF)
- Forecasts (January 2025):
- Global economic growth 2025/2026: 3.3%.
- Key downside risks: inflation, political uncertainty.
- Update (February 2025):
- Downward revision of world trade growth.
- Industrialized countries:
- 2025: 2,1 %.
- 2026: 2,5 %.
- Main factor: Escalating trade tensions.
4. World Bank
- Forecast (January 2025):
- Global growth 2025/2026: 2.7%.
- Evaluation:
- Insufficient for sustainable development.
- Main risks:
- Political uncertainty.
- Negative trade policy shifts.
- Special concern:
- Trade tensions.
5. United Nations (UN):
- Forecast:
- World trade growth in 2025: 3.2% (originally).
- Uncertainties:
- Highlighted by trade restrictions.
6. World Trade Organization (WTO)
- Forecast:
- Growth in merchandise trade in 2025: 3.3%.
- Warning:
- Impact of political uncertainty and new tariffs.
- Estimate:
- US tariffs could reduce global merchandise trade volume by 1%.
7. Yale Budget Lab
- Assessment:
- US tariffs from 2025 onwards will negatively impact global economic growth.
Challenges and risks
1. US trade policy
- Introduction of high tariffs (60% on China, 10% on other countries).
- Escalating trade tensions.
2. Important Downside Risks
- Political uncertainty.
- Inflation.
- Negative trade policy shifts.
3. Global Implications
- Declining growth in global trade and GDP.
- Particular impact on industrialized countries.
4. Long-term projections
- CEPII: Decline in global GDP and world trade by 2030.
- WTO: Tariffs reduce global merchandise trade volume by 1%.
Mechanisms of action
Tariffs negatively impact the global economy through various channels. They increase the cost of imported goods, leading to inflation and reducing consumer purchasing power. They disrupt established global supply chains and decrease demand for traded goods. Furthermore, the uncertainty created by tariffs and unpredictable policy decisions discourages investment decisions by companies worldwide. Finally, unilateral tariffs provoke retaliatory measures that further restrict trade and increase the economic costs for all parties involved.
Consequences for the US economy
Contrary to the stated goals of the policy, the analyses indicate that the US economy itself is suffering considerable damage.
GDP impact
The forecasts consistently show negative effects on US economic growth. CEPII expects a GDP decline of 1.3% by 2030. Fitch lowered its growth forecast for 2025 to 1.7% and estimates the GDP reduction due to tariffs at about 1 percentage point by 2026. The Yale Budget Lab calculates a reduction in growth of 0.9 percentage points for 2025 alone due to all tariffs introduced by then, with a permanently lower GDP of 0.6% in the long term.
Inflation and consumer costs
A key criticism is that the tariffs increase import prices, thus fueling inflation and burdening consumers. The Yale Budget Lab estimates the short-term price increase from all 2025 tariffs at 2.3%, which translates to average additional costs of $3,800 per household per year. Clothing prices are particularly hard hit (+17%).
occupation
While jobs may be created in protected sectors (such as steel), analyses suggest that these gains could be more than offset by losses in other sectors that rely on imports or are affected by retaliatory measures. The general slowdown in economic growth and specific production shutdowns point to negative employment effects.
trade balance
Despite the goal of reducing the trade deficit, this is unlikely, as deficits are primarily driven by macroeconomic factors (the difference between national savings and investment). In fact, the US trade deficit increased significantly throughout 2024 and reached record highs in early 2025, partly due to imports brought forward in anticipation of tariffs. Retaliatory measures also harm US exports.
Corporate investments
The significant political uncertainty caused by unpredictable tariff policies is having a negative impact on companies' willingness to invest.
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US-China trade conflict: Impact on the global economy and Europe
Repercussions for China's economy
China, the main target of the US measures, is also severely affected, even though the country possesses certain resilience.
GDP impact
China's heavy reliance on exports to the US market is leading to anticipated growth losses. CEPII forecasts a GDP decline of 1.3% by 2030. Fitch expects a reduction of approximately 1 percentage point by 2026, with fiscal support measures mitigating the impact. More recent estimates, based on tariffs from April 2025, predict a decline in Chinese GDP of up to 2.4% in 2025 alone.
Trade impacts
A slump in bilateral trade with the US is expected. China is trying to redirect exports to other markets (EU, Canada, Mexico), but overall exports are likely to decline.
Economic challenges
The tariffs exacerbate existing problems such as the weakness of the real estate sector, subdued consumption, deflationary tendencies and demographic challenges.
Political reaction
China is responding with fiscal and monetary policy measures to support the economy and is accelerating efforts to “de-Americanize” its supply chains.
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Impact on the European Union and Germany
The EU, and Germany in particular, are also feeling the negative consequences of US policy.
GDP impact
Negative spillover effects are expected. Fitch forecasts weaker growth for the eurozone in 2025 and a GDP reduction of approximately 1 percentage point by 2026, although German fiscal measures are expected to cushion the blow. The impact could be mitigated by an easing of ECB policy and a depreciation of the euro.
Trade impacts
Direct export losses to the US are expected, as most EU goods are subject to an additional 20% tariff. Indirect effects will arise from trade diversion, for example, if Chinese goods increasingly flood the EU market (a “second China shock”).
Financial spillovers
Rising risk premiums on US bonds due to US budget deficits could increase financing costs in Europe and negatively impact debt sustainability and investment.
Specifics Germany
As a heavily export-dependent nation with the USA as its most important trading partner, Germany is particularly vulnerable. Key industries such as automotive, mechanical engineering, and chemicals are severely affected.
Sectoral Analysis: The Case of Germany
The effects of US trade policy are impacting key German industries, particularly automotive and mechanical engineering, which are of central importance to the economy of Baden-Württemberg. Analyzing these sectors reveals specific challenges and adaptation strategies.
The automotive industry under pressure (including a focus on Baden-Württemberg)
The German automotive industry is particularly at risk due to the US tariffs.
High exposure
The USA is an indispensable sales market for German manufacturers such as Volkswagen, BMW, Mercedes-Benz and Porsche.
Customs implications
The 25% US tariff on imported cars, in effect since April 3, 2025, represents a massive burden.
Production adjustments
Although German manufacturers already produce in the USA, this only covers a portion of their sales. The tariffs create an incentive to shift more production to the USA.
Pricing
Prices for imported vehicles in the US are expected to rise.
Impact on Baden-Württemberg
The state is heavily dependent on the automotive industry. State politicians and local businesses are expressing their concern. Suppliers such as Bosch and ZF are also directly or indirectly affected.
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Challenges for the mechanical and plant engineering sector (including a focus on Baden-Württemberg)
German mechanical engineering, another pillar of the German and Baden-Württemberg economy, also faces significant challenges.
Importance of the US market
The USA is an important export market.
Customs implications
The industry is subject to the general “reciprocal” US tariff of 20% on EU goods.
Existing weakness
Even before the recent tariff increases, the sector was suffering from weak global demand and declining orders.
Impact on Baden-Württemberg
The negative trend in the state's mechanical engineering sector continues. Local chambers of commerce report declining industrial demand. US tariffs are exacerbating the pressure on an already struggling sector in the region.
Supply chain disruptions and strategic responses
US trade policy is causing significant disruptions in global supply chains and forcing companies to make strategic adjustments.
Increased complexity and costs
The tariffs disrupt established global value chains, increase complexity, and make procurement more expensive for internationally operating manufacturers. High levels of political uncertainty make long-term planning more difficult.
Anticipatory behavior
Companies reacted to the threatened tariffs by bringing forward imports.
Reshoring/Near shoring/Friend shoring
A stated goal of US policy is the reshoring of production to the USA. Some companies are considering relocating production from Mexico to the USA (e.g., Samsung, LG). However, tariffs against allies such as Canada, Mexico, and the EU make so-called "friend shoring" (relocation to friendly countries) more difficult.
Diversification
Companies are increasingly looking for alternative markets and suppliers to reduce their dependence on the USA and China.
Investment shifts
German companies are increasing their investments in North America, partly due to concerns about trade barriers.
Assessment of US policy: Intentions vs. reality
The “America First” trade agenda pursues ambitious goals, but the results and analyses to date suggest that the effectiveness of the instruments used is questionable and that significant unintended negative consequences occur.
Stated goals of the “America First” trade agenda
The policy formulated by the Trump administration and reaffirmed in the 2025 trade policy agenda pursues several main objectives:
- Strengthening domestic production
- Reduction of the trade deficit
- Increase in real median income
- Strengthening national and economic security
- Ensuring fair trade / “Level Playing Field”
- Generation of government revenue
Evaluation of effectiveness and goal achievement
Current findings suggest that policy achieves its stated goals only to a very limited extent or not at all, while incurring significant costs.
Production/Employment
There is little evidence of a significant revival of US production as a result of the tariffs.
trade deficit
The US trade deficit has remained high or even increased despite the tariffs.
Income/Consumer Costs
The overwhelming evidence shows that tariffs increase consumer prices and reduce real incomes and purchasing power.
National/Economic Security
The results are mixed. Targeted measures such as export controls against China may address specific security concerns. However, broad tariffs against allies and the resulting supply chain disruptions could weaken rather than strengthen overall economic resilience.
fair Trade
The concept of “reciprocity”, as applied by the administration, is highly controversial.
State revenues
While tariffs do generate revenue, this comes at a significant overall economic cost in the form of reduced GDP growth and burdens on consumers.
Critical perspectives and unintended consequences
US trade policy has faced widespread criticism, and numerous negative unintended consequences have been observed.
- Economic damage
- Political uncertainty
- Regressive distributional effect
- Undermining alliances
- Weakening of multilateralism
Global reactions: Retaliation and countermeasures
The US measures did not go unanswered. Key trading partners responded with extensive countermeasures, further increasing the economic costs and exacerbating the conflicts.
- China: Reacted quickly, comprehensively and escalatingly to every round of US tariffs.
- European Union: Announced a two-stage retaliation.
- Canada/Mexico: Initially faced 25% IEEPA tariffs. These tariffs were later suspended or modified for USMCA-compliant goods.
Geopolitical shifts and systemic implications
The aggressive trade policy of the USA not only has immediate economic consequences, but also triggers profound geopolitical shifts and calls into question the existing international system.
Economic fragmentation and strategic realignment
The global economy is experiencing increasing fragmentation, which is being accelerated by trade conflicts.
- Decoupling/Derisking
- Supply chain shifts
- The Rise of Techno-Nationalism
The link between economic and security policy
The boundaries between economic and security policy are becoming increasingly blurred.
- Security of trade
- Focus on strategic sectors
- Alliances and leverage
The multilateral trading system under pressure
The rules-based multilateral trading system, embodied by the WTO, is coming under massive pressure due to unilateral US measures.
- Erosion of WTO standards
- Paralysis of dispute resolution
- Declining use of the WTO
- Shift towards bilateralism/unilateralism
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The way forward: Current status and future scenarios
Trade and economic relations between the US, China, and the EU are in a state of high tension and uncertainty. Their future course depends on a multitude of factors, including political decisions, economic adjustments, and global developments.
US-China-EU relations: State of affairs (April 2025)
- USA-China: The relationship is highly confrontational.
- USA-EU: Relations are strained, but channels of dialogue remain open, albeit burdened.
- EU-China: This relationship is heavily influenced by US measures.
Possible developments and outlook (2025-2026)
Based on the current dynamics, various scenarios for the near future can be outlined:
- Scenario 1: Continued Escalation
- Scenario 2: Negotiated De-escalation / Stalemate
- Scenario 3: Muddling through with structural shifts
Conclusions and strategic recommendations
The analysis of US trade and economic policy from 2018 to 2025 paints a picture of profound change with far-reaching consequences. The shift away from multilateral principles in favor of unilateral measures has created a state of permanent tension and uncertainty in the global trading system.
Key conclusions
- Hybrid conflict
- Significant economic costs
- Questionable goal achievement
- Escalation and retaliation
- Geopolitical fragmentation
- Persistent uncertainty
Strategic recommendations
For businesses:
- Diversification of supply chains and markets
- Scenario planning
- Localization/Regionalization
- Advocacy
- Compliance and monitoring
For political decision-makers (especially EU/Germany):
- Prioritization of negotiations
- Strengthening European unity and capacity to act
- Credible, but measured retribution
- Strengthening alliances and diversifying partnerships
- Reform of the multilateral system
- Strengthening one's own resilience
The economic and trade war initiated by the US has ushered in a new era of global economic relations, characterized by increased confrontation, uncertainty, and fragmentation. A return to stable, rules-based conditions will require significant diplomatic efforts and a strategic realignment of all actors involved.
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