Economic Analysis of U.S. Tariffs Announced in March-April 2025 (Updated to reflect reciprocal tariff pause and increased China tariffs) *

James Giesekcke and Robert Waschik
Authors registered in the RePEc Author Service: James Giesecke

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: This paper examines the economic impacts of U.S. tariff increases announced over March-April 2025 using GTAP-FIN, a dynamic global general equilibrium model. We simulate three scenarios: (1) U.S. tariff hikes without retaliation, (2) retaliation by all trading partners except Australia, and (3) retaliation coupled with U.S. fiscal consolidation via tariff revenue. Across all scenarios, U.S. real GDP declines, driven by deep short-run employment losses, long-run capital stock contractions, and persistent allocative efficiency losses. In the no retaliation case, improved U.S. terms of trade raise U.S. real consumption despite output losses. However, this benefit is reversed under retaliation, which lowers U.S. export prices and consumption. Fiscal consolidation amplifies U.S. consumption losses, but mitigates investment declines. Australia is modestly affected, benefiting from improved terms of trade and investment in the retaliation scenarios. For China, heavy tariff exposure results in sustained terms of trade and consumption losses, athough outcomes improve marginally with U.S. fiscal consolidation. Globally, regions most exposed to U.S. tariffs see the sharpest consumption declines, particularly under the no retaliation scenario. The analysis does not capture the heightened investor uncertainty arising from the unclear policy rationale behind the tariffs, suggesting that adverse economic impacts may exceed those estimated in this paper.

Keywords: U S tariffs; Trump tariffs; "Liberation Day" tariffs (search for similar items in EconPapers)
JEL-codes: C68 D58 F13 F47 (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-cna
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