Ankara: Global markets are reeling from US President Donald Trump's sweeping new tariffs, the latest escalation in a trade strategy he defends as a cure for America's chronic trade deficit. But economists and financial institutions are issuing urgent warnings that the fallout may be far more damaging than the disease.
According to Anadolu Agency, Barry Eichengreen, a leading economic historian at the University of California, Berkeley, has drawn comparisons between Trump's tariffs and the Smoot-Hawley Tariff of 1930, a policy widely blamed for worsening the Great Depression. Eichengreen highlighted that these new tariffs are equally substantial, and the negative reaction from financial markets indicates increased recession probabilities, notably for the United States and also globally.
The Smoot-Hawley Tariff, named after Senator Reed Smoot and Representative Willis C. Hawley, was enacted to protect American farmers and industries during the Great Depression by raising tariffs on over 20,000 imported goods. While intended to safeguard domestic jobs and industries, the tariff led to a global economic shockwave, with countries retaliating with tariffs on US goods, severely impacting international trade, domestic production, and consumption, effects that lingered until World War II.
At a recent news conference, Trump defended the tariffs, which impose a minimum 10% duty on all imported inputs and final goods, as necessary 'medicine' against unfair trade practices. Despite his steadfast support for tariffs since his first term in 2018, prominent figures in business and finance have expressed significant concerns.
Markets have responded sharply to the tariffs. London's FTSE 100 fell by up to 6%, marking its lowest level in over a year. Asian markets also experienced steep declines, some of the largest in decades. Goldman Sachs adjusted its US growth forecast for 2025 from 1% to 0.5% and increased its recession probability from 35% to 45%, citing tightening financial conditions, foreign consumer boycotts, and deepening policy uncertainty, reminiscent of the global retrenchment seen in the 1930s due to US tariffs.
Tesla CEO Elon Musk, a notable critic and a close ally of Trump as head of the Department of Government Efficiency (DOGE), reiterated his support for free trade, particularly between the US and the EU. Musk advocated for phasing out tariffs and establishing free-trade zones, sharing a video of economist Milton Friedman to emphasize global cooperation over tariff-driven nationalism.
Industries heavily reliant on global supply chains, such as auto manufacturing, electronics, and pharmaceuticals, are particularly vulnerable to Trump's tariffs. Eichengreen warned that these tariffs are disastrous for firms dependent on global supply chains, as on-shoring production of such inputs is a lengthy process, thereby straining America's trade alliances.
Eichengreen further noted that virtually every economy is impacted by these tariffs, with countries adjusting their trade strategies to divert trade away from the US. He suggested that countries might negotiate new trade agreements among themselves or expand existing regional arrangements to mitigate the disruption caused by the tariffs.
The global trade disruption initiated by the tariffs could have far-reaching effects. Eichengreen fears that the damage to the perception of the US as a reliable trade partner will not be easily repaired.