Global Consequences of Second Round of Tariffs: A General Equilibrium Approach

Srivastava Archana and Mathur Somesh K
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Srivastava Archana: BITS Pilani Hyderabad Campus
Mathur Somesh K: Indian Institute of Technology

Journal of Economic Integration, 2026, vol. 41, issue 3, 623-638

Abstract: This study employs the GTAP 11c database within an applied general equilibrium framework to evaluate the global economic consequences of the second wave of U.S. tariffs announced by President Trump on July 7th and 9th, 2025. The analysis is structured around three scenarios: (1) a universal imposition of tariffs by the United States on a wide array of trading partners, (2) a reciprocal retaliatory response by affected countries mirroring the U.S. tariff levels, and (3) a more strategic application wherein India, Vietnam, and the United Kingdom are exempted from the tariffs due to existing or imminent bilateral trade agreements. Results reveal that the U.S. and regions like Western Europe and MENA may experience short-term welfare gains due to tariff revenue and trade diversion. But the heavily targeted countries such as China, Mexico, and Canada suffer substantial GDP and welfare losses. Scenario 3 highlights strategic advantages for exempt nations. They will benefit from enhanced supply chain integration and productivity gains under deep bilateral trade alignment. Although global GDP declines in all scenarios, the contraction remains below 1%. This indicates resilience but revealing systemic vulnerabilities. The findings attract attention towards WTO led multilateral system as this reveal growing shift for selective bilateralism at the expense of multilateral trade norms. Thus, policymakers in beneficiary countries must pursue structural reforms to sustain long-term gains. Also, the adversely affected nations must diversify to mitigate the negative effects.

Keywords: Trump Second Round Tariffs; General Equilibrium; GTAP (search for similar items in EconPapers)
JEL-codes: C68 D58 F12 F13 F17 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:023567

DOI: 10.11130/jei.2026006

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