While some feared a global economic downturn due to shifting U.S. trade policies, recent developments suggest that the impact has been more about adaptation than destruction. Over the past eight decades, free-trade principles significantly contributed to worldwide economic expansion, encouraging nations to lower trade barriers and resolve disputes through international institutions rather than conflict. This environment fostered innovation, allowed businesses to benefit from economies of scale, and supported long-term investment in research with uncertain payoffs.
In contrast, former President Donald Trump’s approach marked a departure from multilateral frameworks, emphasizing instead bilateral trade balances and viewing trade deficits as signs of exploitation. For instance, when India recorded a $44.4 billion surplus with the U.S. in fiscal year 2024–2025, it was interpreted by the administration as evidence of unfair advantage. Additionally, certain industries were deemed strategically vital and thus deserving of protection from foreign competition.
A key component of this strategy involved using tariffs not just as trade tools but as revenue generators. U.S. Treasury Secretary Scott Bessent projected tariff income exceeding $300 billion in 2025, suggesting these funds could support increased spending or tax reductions without worsening fiscal conditions. Although the federal deficit remained high at $1.8 trillion (6.4 percent of GDP in 2024), tariff receipts may help reduce the deficit-to-GDP ratio to 5.6 percent in 2025.
Despite initial concerns that such measures might trigger a global trade war and cut world GDP by up to one percentage point, outcomes so far have been less severe. Bloomberg revised its 2025 global growth forecast only slightly downward—from 3.1 percent in December 2024 to 3.0 percent in July 2025. Most countries avoided retaliatory escalation, keeping economic damage limited.
It’s important to note that tariffs constitute only part of overall trade restrictions, with non-tariff measures still dominant. If these remain stable, even a 12-percentage-point rise in tariffs translates into a relatively modest drag on commerce and growth. Moreover, competitive dynamics persist in major economic regions like the U.S., EU, and parts of Asia, where firms continue innovating under market pressure.
The primary consequence of the new policy has been the cost of adjustment—businesses revising supply chains and delaying risky investments due to uncertainty. However, these shifts are manageable and unfolding over extended periods, rather than causing immediate disruption.
— news from GIS Reports
— News Original —
Tariffs bring adjustments, not economic ruin – GIS Reports
Tariffs bring adjustments, not global economic ruin n nOver eight decades, free-trade principles fueled global economic growth and prosperity, yet President Trump seeks to redefine international norms. n nOver the past 80 years, policymakers have recognized the benefits of free-trade principles. They gradually agreed to restrain their discretionary power and abstain from regulating trade to raise cash (tariffs) or create privileged positions for selected producers (non-tariff barriers). International agencies were established to ensure that an increasing number of countries reduced their trade barriers and resolved economic disputes without resorting to trade wars. This was mirrored by the business world intensifying its efforts to compete in global markets and relying on free-trade principles to develop long-term strategies. n nThe economic results that followed were spectacular. The reduction of trade barriers was the handmaiden of growth in large parts of the world. Free (or freer) trade spurred competition, unleashed entrepreneurial energies, allowed producers to enjoy economies of scale and justified daring research projects that would promise uncertain rewards only in the long run. Decades of unparalleled innovation followed. n nAt the same time, global financial markets ensured that the nature of trade imbalances (surpluses and deficits) would change. Rather than being a nightmarish problem for the authorities, they turned into signals. In the new free-trade world, a trade surplus simply meant that a community preferred to spend less to finance others, while some other communities decided to spend above their means and borrow the difference. This framework is neither surprising nor dramatic. While problems may arise if borrowers are unable to repay their debts, from a free-market perspective, such events should concern individuals and companies, not governments. n nGovernments that borrow on international markets are essentially forcing residents to take on additional debt and further weaken their financial position. n nGovernments become part of the problem if their actions make it difficult for borrowers to accumulate resources to manage their debts. Policy shortcuts can backfire. For example, central banks have learned at their own expense that manipulating exchange rates is often futile. Governments that borrow on international markets are essentially forcing residents to take on additional debt and further weaken their financial position. Shortcuts are not solutions but add new problems to these existing difficulties. n nTrump: Out with the old policies, in with the new n nSince the beginning of his mandate, United States President Donald Trump has tried to implement a different approach that features four elements. n nFirst, in his view, international trade does not relate to agents – individuals and companies who buy and sell – but to countries. Second, trade policy is not a multilateral issue, where the same rules apply to all countries, but a tool to ensure bilateral balances. Third, bilateral imbalances signal exploitation. For example, in India’s fiscal year 2024-2025, the country had a $44.4 billion trade surplus with the U.S. and in consequence, President Trump claimed that India is exploiting the U.S. The fourth element regards sectoral imbalances: Not unlike what happens in other countries, the current U.S. administration strongly believes that selected industries play a strategic role and, therefore, deserve adequate protection from international competition. n nTo complete the picture, one should also emphasize that President Trump considers tariffs a substitute for domestic taxation. In July, U.S. Treasury Secretary Scott Bessent declared that he expected tariff revenues to be significantly higher than $300 billion in 2025. He is persuaded that higher tariff revenues allow him to increase public expenditure and cut taxation without much concern for the public budget (the U.S. federal budget deficit in 2024 was $1.8 trillion or 6.4 percent of gross domestic product [GDP]). This explains why Washington’s current emphasis is on tariff barriers, rather than non-tariff barriers (regulation, for example). n nConsistent with the four principles mentioned above and buttressed by a belief in fiscal free lunches, the U.S. administration has engaged in a set of aggressive bilateral trade negotiations with many countries in recent months. It is far too early to evaluate some of the consequences. Nonetheless, a few preliminary results stand out. n nThe fiscal free-lunch story is correct n nTariff revenues will likely stabilize America’s 2025 budget deficit (the current predictions point to $1.7 trillion) and allow the deficit-to-GDP ratio to fall from 6.4 percent to 5.6 percent. However, the deficit remains high compared with both recent history and the internationally accepted standard that fiscal gaps should not exceed 3 percent of GDP. The U.S. deficit also contributes to an increasingly heavier public debt, which was about 124 percent of GDP in 2024 and continues to rise. For comparison, the current debt-to-GDP ratio in the euro area is 82 percent. Debates about how to finance the U.S. gap are already making headlines. n nContrary to expectations, the new U.S. approach to tariffs has failed to unleash a global trade war and shatter the world economy. America’s trading partners have taken different paths, but escalation has been averted and damage thus far contained. While a few months ago observers were predicting that the tariff war would shrink global GDP by 0.5 to 1 percentage point, it now seems that such pessimism was not justified. For example, Bloomberg has lowered its estimates for 2025 world GDP growth from 3.1 percent (December 2024) to 3.0 percent (July 2025). n nPutting trade and economics in context n nTariffs represent only a share of the existing trade barriers. The dominant component of protectionism consists of non-tariff barriers; if these stay somewhat constant, a 12 percentage-point rise in tariff barriers is equivalent to a relatively lighter burden on trade (and economic growth). n nThe main drivers of economic growth are competition and productive entrepreneurship. Higher trade barriers with the U.S. do not thwart competition and entrepreneurship in vast regions where producers operate on an equal footing. In other words, in these locations, producers stay under competitive pressure and are incentivized to innovate. The U.S., the European Union and large parts of Asia are such regions. n nRead more by economics expert Enrico Colombatto n nHow tariffs will shape inflation n nEuropean defense expenditure: Is it enough? n nDebt and precarious stagnation in the EU and Germany n nThe main effect of President Trump’s trade policy is the cost of adjustment: Producers revise their investment strategies and alter their supply chains. These changes are not without costs, of course, but such expenses are manageable and are likely spread over relatively long periods of time. n nAlthough markets do not care for President Trump’s unpredictable behavior, uncertainty discourages hasty decisions and the costs involved. Certainly, risky investment plans will likely be cut, reduced or put on hold, but the consequences will not surface in the short run.