Economists caution that U.S. President Donald Trump’s intensified trade war, which reached new heights on Wednesday, is expected to impact Americans more adversely than any other nation. Imposing taxes on all imports will increase expenses for U.S. businesses, leading them to hike prices for consumers and potentially driving the U.S. into a prolonged economic downturn. Claudia Sahm, chief economist at New Century Advisors, recently informed TIME, “It will be challenging for the U.S. to escape a recession if the announced tariffs remain in place.”
“The United States is undoubtedly the biggest loser in this situation,” says Yuan Mei, an assistant professor at the School of Economics at Singapore Management University. However, this doesn’t imply there won’t be a series of ripple effects felt worldwide. Just last week, J.P. Morgan increased its prediction of the global economy entering a recession by the end of the year from 40% to 60%.
While President Trump claims that his “reciprocal” tariffs aim to boost U.S. manufacturing, Ja-Ian Chong, an associate professor of political science at the National University of Singapore and non-resident scholar with Carnegie China, suggests that the actual outcome might be a reduction in global demand and production both in the U.S. and internationally.
According to Kristina Fong, an economic affairs researcher at the ISEAS-Yusof Ishak Institute’s ASEAN Studies Center in Singapore, U.S. manufacturers and importers will be the first to experience the impact. If American importers decide to absorb the tariff costs, their profitability will suffer, potentially leading to changes such as downsizing operations and laying off workers.
However, it is more likely that importers will pass on some or all of the tariff costs to American consumers. As a result, consumers may reduce their spending, leading to decreased demand that affects both domestic and foreign businesses, potentially causing layoffs. “Essentially, you’ll be affected in several ways, regardless of how you look at it,” Fong notes.
Most products are not entirely made or assembled in one country; items labeled “made in U.S.A.” or “made in China” often contain components sourced from other countries. With diminished demand in the U.S., “not only will goods stop flowing into the U.S.,” Chong explains, but “the demand for components used in assembling those goods will also fall.”
For countries considering retaliation against U.S. tariffs, such as China, U.S. imports would likely undergo a “parallel process,” where demand for U.S. products—assembled with components sourced globally—would decline, says Ja-Ian Chong. As a result, producers might respond by reducing their workforce or ordering fewer components, impacting factories worldwide that supply these parts.
During Trump’s first term, trade tensions between the U.S. and China prompted firms in China looking to continue selling to the U.S. to relocate elsewhere, notably benefiting Southeast Asia. This mitigated the financial impact on American consumers, according to Kristina Fong. However, this time, Trump’s tariffs, which target nearly every country globally, could lead to a more “broad-based effect.”
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“The ability to bypass these tariffs is diminished since everyone is affected,” notes Kristina Fong.
Countries like Vietnam, Cambodia, and Bangladesh, facing tariffs of 46%, 49%, and 37% respectively, will be particularly impacted as they are key manufacturing hubs with significant exports to the U.S. A loss of market share in the U.S. could severely affect their local economies. For instance, American buyers have already begun reducing orders from Bangladesh, which last year exported $7.34 billion in apparel to the U.S., its largest export market. Bangladesh’s apparel industry employs around 4 million workers.
Vietnam, producing 50% of Nike’s footwear and 39% of Adidas’s, faces similar risks. OCBC estimates that it could lose up to 40% of its total goods exports due to high tariffs, potentially prompting some companies to move production out of Vietnam or deterring new investments.
Ivan Png, an economist at the National University of Singapore, suggests that U.S. tariffs might lower prices for consumers outside the U.S., as major exporters like China could redirect their exports to countries with lower tariffs than the U.S. If production remains steady and prices are adjusted for these new, smaller markets, this could occur. However, others like Mei caution that attempts by exporters to navigate around U.S. tariffs might disrupt global supply chains, potentially increasing production costs that could be passed on to consumers.
The ripple effects will extend beyond producers and consumers directly affected by tariffs. “Today’s manufacturing processes are not just about someone tightening a screw on a component,” explains Ja-Ian Chong. Businesses globally rely on services like banking, software, engineering, and legal support, many of which the U.S. significantly exports. “With reduced production, the demand for these services also decreases,” Chong adds.
For instance, as demand for goods declines, advertising services will also feel the impact, prompting a range of businesses to consider cost-cutting measures.
The Trump trade war could also affect international security and alliances. The U.S. serves as a key trading partner for regions like Southeast Asia, where it also holds significant diplomatic and defense relationships. “But that can change,” Jayant Menon, a research fellow at ISEAS-Yusof Ishak Institute, tells TIME. “It will be a period of adjustment, but shifts are likely, and we will see those changes occur.”
Countries may seek to diversify their trade activities and engage more with “more reliable” partners, Menon suggests. Fong observes that many countries are already increasing trade with China. “It’s a gradual momentum, but it’s always been the underlying trend,” she notes.
Ivan Png predicts that a potential global recession resulting from the tariffs could reach a scale similar to the 2008 global financial crisis, which led to an 18-month Great Recession and the worst global economic downturn since the Great Depression. However, Mei is more cautious, indicating that while trade tensions will affect investments, financial hubs like Singapore might be relatively shielded, whereas countries heavily reliant on trade will suffer more significantly.
Menon suggested that the recent global economic downturn triggered by the COVID-19 pandemic might provide insights into a potential new decline. During the pandemic, there was an abrupt demand shock due to supply shutdowns, followed by a “massive spending surge to pull us out,” Menon explains, resulting in a “swift recovery, but accompanied by significant inflation.” Menon believes this pattern could reoccur, particularly since tariffs contribute to higher prices. He warns that we might face “permanently elevated inflation and sustained output losses,” leading to “long-lasting effects on unemployment, inequality, and poverty.”
Several countries have already moved quickly to negotiate with Trump, aiming to mitigate the worst economic impacts. Vietnam, which faced a 46% “reciprocal” tariff, reportedly offered to reduce its tariffs on U.S. products to 0%, but the U.S. declined the proposal.
“The ultimate goal is quite clear,” Menon tells TIME. Trump desires a “balanced bilateral trade position,” meaning it’s insufficient for countries to simply lower or eliminate their tariffs on the U.S.; they must also purchase nearly the same amount of U.S. goods as the U.S. purchases from them.
“These tariffs won’t achieve that,” Menon asserts. “Nothing will, because that’s not how trade operates. Balancing trade by not engaging in it at all defeats the purpose. Countries trade because they have different capabilities and cost structures.”
“The U.S. has reached a stage in development where it has moved beyond manufacturing,” Menon explains. “Manufacturing nations aspire to reach this level, yet the current approach is regressive.”
“It’s feasible,” he adds, “but only if you’re willing to ‘pay $25,000 for your iPhone.'”
Even if Trump eventually reverses or reduces many of the tariffs imposed globally, Menon believes some damage is irreversible. “In just a few months, the U.S. has squandered decades of goodwill with its allies by adopting this unreasonable stance. When you start penalizing your friends with tariffs based on an illogical approach, there’s no turning back.”
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