Economic impact of the proposed reciprocal tariffs to have a modest effect on U.S.- analyst

Trump administration's "Fair and Reciprocal Tariff Plan" was unveiled, aligning with expectations of a directive rather than immediate actionable news.

The plan calls for agencies to draft specific tariff proposals, with a series of reports on other countries' tariff and non-tariff barriers due by April 1. Subsequently, the U.S. Trade Representative (USTR) and the Department of Commerce will initiate investigations.

Analysts at Wolfe Research have assessed the economic impact of the proposed reciprocal tariffs, predicting only a modest effect on the U.S. economy. The analysis suggests a slight downturn in GDP and a minor increase in inflation.

The magnitude of the impact is expected to vary depending on whether the tariffs are implemented at the country level or product level, with the latter potentially having a more significant effect.

The White House has hinted at product-specific tariffs, citing examples such as European Union autos, Brazilian ethanol, and Indian motorcycles during the announcement. Despite this, the overall effect on major U.S. trade partners may be limited due to existing free trade agreements and retaliatory structures, such as those with China.

The Trump administration is also placing emphasis on non-tariff barriers, particularly value-added taxes (VATs), which introduces additional complexity to the policy's potential outcomes.

While Wolfe Research acknowledges the possibility of substantial tariff increases for some trade partners, they also highlight the likelihood of such a scenario as low. However, if it were to occur, analysts believe it could have a significantly negative impact on the U.S. economy.

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