Trump tariffs 2.0 Update
trade-wars
New 25% tariffs on Canada and Mexico plus 20% on China take effect, modelled to push the US itself into recession alongside its neighbours.
Tariffs of 25% on Canada and Mexico, plus an additional 20% on China, take effect the next day, with “reciprocal” tariffs to follow on April 2. Using a structural gravity model, the piece projects these barriers will raise US prices by 2.7% and tip the US into recession, with real GDP per capita falling 0.9% — while Canada and Mexico face even sharper contractions of 3.7% and 5% respectively. The bottom line: the policy hurts the US and its closest neighbours more than it hurts China, while generating modest trade-diversion gains for third countries like South Korea.
Originally published on Substack, March 3, 2025.