Global cost of 2025 tariff war could reach $1.4tn, report finds
A full-blown trade war between the US and its trading partners could cost $1.4tn, a new report shows.
Economists at Aston Business School have modelled a range of potential scenarios, including the possibility that America it hit by full global retaliation after it announces new tariffs against other countries.
That full-scale trade conflict could result in a $1.4 trillion global welfare loss, Aston has calculated.
The report explains that tariff escalation leads to higher prices, reduced competitiveness, and fragmented supply chains, as we saw in 2018 in the US-China trade war.
It says:
Donald Trump’s 2025 return to power has unleashed a gale of protectionism, reshaping global trade within weeks.
They outline six scenarios, from the first wave of tariffs already announced against Canada, Mexico and China to a full-blown trade war.
Here are the key findings:
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US initial tariffs: US prices rise 2.7% and real GPD per capita declines 0.9%. Welfare declines in Canada by 3.2% and Mexico by 5%.
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Retaliation by Canada, Mexico and China: US loss deepens to 1.1%, welfare declines in Canada by 5.1% and Mexico by 7.1%.
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US imposes 25% tariffs on EU goods: Sharp transatlantic trade contraction, EU production disruptions, US welfare declines 1.5%.
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EU retaliates with 25% tariff on US goods: Prices rise across US and EU, mutual welfare losses and intensified negative outcomes for the US. UK experiences modest trade diversion benefits.
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US global tariff: Severe global trade contraction and substantial price hikes substantially affect North American welfare and UK trade volumes.
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Full global retaliation with reciprocal tariffs: Extensive global disruption and reduced trade flows, severe US welfare losses, $1.4 trillion global welfare loss projected.
The full-blown trade war (scenario 6) would have “profound implications” for interconnected economies like the UK.
The report says:
As a trade-dependent nation navigating post-Brexit realities, the UK stands at a crossroads. Trump’s tariffs disrupt supply chains and exports, yet might open doors for rerouting, with high potential for exporting much more to the U.S.
The dual-edged impacts are stark: fleeting export gains collide with vulnerabilities in critical sectors like automotive and tech, while EU divergence risks, amplified by regulatory misalignment and political distrust, threaten its efforts in resetting the UK-EU relationship.
So while the UK can use its post-Brexit flexibility to mitigate risks and leverage new trade routes, sustained gains depend on rebuilding EU ties and supporting a rules-based international trade order, they add.
Key events
Experts have been warning today that tomorrow’s tariffs announcement could lead to increased job cuts in the UK.
Matt Swannell, chief economic advisor to the EY Item Club, said:
“US tariffs on goods imports from the UK could rise tomorrow, with survey respondents indicating that the possibility of higher tariffs is already weighing on demand for exported goods.”
He said the prospect of tariffs, coupled with weak domestic demand, is “seeing the sector cut jobs”.
Myron Jobson, senior personal finance analyst for Interactive Investor, has warned that the UK will be affected by the trade war, even if it manages to dodge direct tariffs:
“President Donald Trump’s tariffs war could have far-reaching consequences for Britons, even if the UK manages to escape direct levies.
“If tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and borrowing costs.
“This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth.
“For investors with exposure to US equities – either directly or through pension funds and ISAs – this could translate into market turbulence.”
Wall Street falls on Liberation Day Eve
Over in New York, shares have fallen at the start of trading.
After a late rally yesterday, the Dow Jones Industrial average has dropped by 0.6% or 261 points today to 41,740 points.
The S&P 500, which also finished yesterday’s volatile session higher, is down 0.4%.
Traders will be digesting today’s report that the White House is preparing new 20% tariffs on most imports to the US, for Donald Trump to announce on Wednesday.
Fawad Razaqzada, market analyst at City Index and FOREX.com, reports that market sentiment remains fragile ahead of “Liberation Day” (as Trump dubs it) tomorrow.
All eyes are on Trump’s next move—a sweeping set of new tariffs, set to be unveiled on Wednesday, which he has proudly dubbed “Liberation Day.”
The premise? That hiking tariffs will boost domestic industry and create jobs.
The reality? Investors fear it could stoke inflation while simultaneously weighing on economic growth—a toxic mix for an already shaky market.
Investors have been catching their breath today after a volatile first three months of the year.
The first quarter of 2025 was “historical” in several ways, say analysts at Deutsche Bank. As well as the launch of Donald Trump’s tariffs, there was a “huge fiscal regime shift” in Europe with Germany taking steps to boost borrowing and spending, and the launch of new AI models by China’s DeepSeek.
Amid the volatility, virtually all global assets were positive in return terms, outside of US equities.
Here’s the details:
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Gold prices (+19.0%) saw their strongest quarterly gain since 1986. That’s partly due to concerns around inflation, with the US 1yr inflation swap (+72bps) rising to 3.25%.
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At the other end, US tech stocks had a very rough time, with the Magnificent 7 (-16.0%) posting its biggest quarterly decline since Q2 2022, back when the Fed pivoted towards 75bp rate hikes to deal with inflation. Similarly, the NASDAQ fell -10.3%.
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In Europe, equities saw a much brighter performance given the fiscal shift, even if they gave up some of those gains in the second half of March. For instance, the DAX surged by +16.3% in Q1 in US dollar terms, which got some help thanks to the +4.5% appreciation of the Euro against the US Dollar in the quarter.
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That said, Euro sovereign bonds struggled, and March 5 saw the 10yr bund yield post its biggest daily jump since German reunification, with an astonishing +29.8bps move. Over the quarter as a whole, it was up +37bps to 2.74%.
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With investors moving out of US assets, the US Dollar weakened against other major currencies, with the dollar index down -3.9% over the quarter. In fact, the dollar weakened against every other G10 currency apart from the Canadian dollar in Q1, which faced the impact of US tariffs.
Donald Trump doubles his wealth to $5.1bn
Donald Trump doubled his wealth last year, Forbes reports, partly thanks to his dabbling in crypto.
Forbes’s latest Annual Billionaires List shows that Elon Musk is the world’s richest person again, having overtaken French luxury goods titan Bernard Arnault.
Musk’s net worth grew by 75% in 2024 to an estimated $342bn, due to higher valuations of xAI and SpaceX, and a 12-month rise in Tesla stock, despite the recent selloff.
Musk is the first person to reach the $300 billion mark.
President Donald Trump more than doubled his net worth to an estimated $5.1bn, thanks to his shares of Trump Media & Technology Group and “big cash inflows from his recent crypto ventures”, such as the $Trump meme coin launched earlier this.
Here are more highlights from the report, via Forbes:
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Newcomers: The 2025 ranking features 288 newcomers, including musician Bruce Springsteen, Chipotle founder Steve Ells, Alphabet/Google CEO Sundar Pichai, actor and former CA governor Arnold Schwarzenegger and Scale AI cofounder Alexandr Wang, the youngest self-made billionaire in the world, at age 28.
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Globally: The United States has more billionaires than any other country, now boasting a record 902 on the list, worth a combined $6.75 trillion. China follows, with 450 billionaires, while India comes in third, with 205.
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The $100 Billion Club: A record 15 people worldwide now have 12-figure fortunes, up from 14 last year and zero in 2017. This elite group is worth $2.4 trillion in all, meaning just 0.5% of the world’s 3,028 billionaires hold approximately 15% of all billionaire wealth.
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Drop-offs: 107 people dropped off the list this year, including Hermès heir Nicolas Puech and Hobby Lobby’s David Green, among others. An additional 32 billionaires died.
Inquiry launched into UK statistics office
Heather Stewart
OBR chair Richard Hughes is not the only one concerned about the work of the Office for National Statistics (ONS). The cabinet office has launched an independent inquiry into the Newport-based number-crunchers, underlining the concern in government about the reliability of its data.
Chaired by former DWP permanent secretary, Sir Robert Devereux, the review will report by the summer. Its findings will be handed to cabinet office permanent secretary, Cat Little, and another Sir Robert (Chote, in this case), chair of the UK Statistics Authority.
A Cabinet Office spokesperson said:
“in light of some specific concerns, the UK Statistics Authority and the Cabinet Office are commissioning an independent review into the ONS and how we can best support its staff and the timeliness and accuracy of the UK’s official statistics.”
Mark Sweney
The chief executive of Channel 4 has said that artificial intelligence companies are “scraping the value” out of the UK’s £125bn creative industries, and the government must not allow them to continue to do so without paid permission.
Alex Mahon said that if the government pursues its proposed plan, to give AI companies access to creative works unless the copyright holder opts out, it would put the UK creative industries in a “dangerous position”.
“AI is clearly absolutely critical to the future of our industry, and many industries,” she said, speaking at the House of Commons culture select committee of MPs on Tuesday.
“The debate of the day is we need very clear terms. UK copyright law is are very, very clear. And what is happening at the moment is the scraping of value from our creative industries.”
Critics of the government’s opt-out proposal, issued in a consultation that closed in February, argue that it is unfair and impractical.
Generative AI models, the term for technology that underpins powerful tools such as CharGPT, are trained on vast amounts of data to generate highly realistic responses.
Mahon said that allowing large language models (LLMs) to continue to freely scrape data poses a major threat to the creative industry, which generates £125bn in gross value added (GVA), a measure of how much value companies add through the goods and services they produce.
“The creative industries account for 6% of the UK’s GVA and is growing 1.5 times faster than other sectors,” she said. “If we continue in a world where LLMs can scrape and use that data without paying for it properly we are in a dangerous position for the industry.”
Mahon said that Channel 4 is “very clear” that the copyright regime should be “opt-in”.
“The burden should be on them, not us,” she said.
“We are very clear we think that LLMs need to licence what they use and pay properly for it. We can’t have automated scraping, we need a proper payment and licensing regime.”
Goldman Sachs cuts forecast for UK growth due to tariff spillovers
Goldman Sachs have cut their forecast for UK growth this year, due to the economic damage that new US tariffs will cause, even if Britain ultimately avoids them.
In a new research note today, Goldman say they assume that the US does impose duties on critical goods imports from the UK, but also that the UK ultimately avoids reciprocal tariffs given the balanced trade between the two countries (which could happen if a trade deal is agreed).
Even so, though, Goldman have trimmed 0.1 percentage point off their forecast for UK growth this year, and in 2026, saying:
However, our updated global baseline now assumes notably larger US tariffs on other economies including the EU. We have consequently downgraded our 2025 growth forecasts for both the US and the Euro area, implying greater spillovers to the UK.
As such, we now see a larger total hit to UK GDP from trade tensions even if the UK does avoid a reciprocal tariff. We therefore lower our UK growth forecast for 2025 to 0.8% (from 0.9%) and for 2026 to 1.2% (from 1.3%).
Trump aides “draft proposal for at least 20% tariffs on most imports to US”
White House aides have drafted a proposal to impose tariffs of around 20% on most imports to the United States, the Washington Post is reporting.
U.S. President Donald Trump’s team is mulling using trillions of dollars in new import revenue for a tax dividend or refund, the report said, citing sources.
If the US were to maintain tariffs at 20% or 25% on the UK for five years it would “knock out all the headroom the Government currently has”, the UK’s fiscal watchdog has warned.
Giving evidence to the Treasury Committee on the spring statement, OBR member David Miles said:
“If tariffs at 20, 25% were put on the UK and maintained for five years, our assessment of what that does is that it will knock out all the headroom that the Government currently has.
“Had we made that a central forecast, and had the Government not changed policy at all knowing that we were going to take that as our central forecast, then the headroom would have pretty much all gone.
“Of course that would have been in some ways, a very extreme assumption. Because not only would that be as bad as people might expect in the very near term, but it would have been maintained for five years, which is beyond the next presidential election in the US.”
Rachel Reeves maintained her headroom to hit her debt targets in last week’s spring statement, by announcing new cuts to welfare spending.
Miles also suggested that a “very limited tariff war” could be “mildly” beneficial for the UK economy, if we kept out of it!
He explained:
“There’s a bit of trade that will get diverted to the UK, and some of the exports from China, for example, that would have gone to the US, they’ll be looking for a home for them in the rest of the world.
“And stuff would be available in the UK a bit cheaper than otherwise would have been. So there is one, not central scenario at all, which is very, very mildly potentially positive to the UK. All the other ones which involve the UK facing tariffs are negative, and they’re negative to very different extents.”
Tomorrow could bring “trepidation not liberation” says Rupert Thompson, chief economist at IBOSS (part of financial services group Kingswood).
On Trump’s “Liberation Day” he writes:
The range and size of the tariff increases remains quite uncertain, not least because of the complexity of the issue and the sheer difficulty in assessing the appropriate tariff for differing goods/countries. That said, the tariff hikes are looking likely to be significantly higher than was generally expected a couple of months ago.
As with all his proclamations on tariffs, it is impossible to know whether and for how long they will actually be implemented.
And on the recession risks to the US, he adds:
The hit to US growth over the coming year looks likely to be of the order of 1% or so depending on the size of the tariff hikes. However, we continue to believe a fall into recession is unlikely. The economy proved unexpectedly resilient to Fed jacking up rates in 2022. And with the consumer and the corporate sector still in pretty good shape, it is well placed to withstand the self-harm now being inflicted.
Heather Stewart
As Office for Budget Responsibility chair Richard Hughes continues his evidence to MPs on the cross-party treasury select committee, he has underlined the challenges of forecasting at the moment, on the basis of shonky data from the Office for National Statistics (ONS).
Hughes said the OBR currently receives “an incomplete picture from different points in time,” from the ONS – with GDP and jobs market data updated on different timescales.
He says:
“Waiting for either the numerator or the denominator to be updated when you’re either looking at one or the other is not a good place to be; and so I think quality, timeliness and consistency of the main economic data sets are the things that are most important to us as forecasters.”
Hughes’s colleague David Miles also gave an alarming insight into the importance of hard-to-estimate productivity growth, on the overall forecast.
If productivity growth does not recover as the OBR expects, from “dismal” rates in the last two years, by the end of the five year forecast, “that would mean that the current deficit is something like £50bn,” instead of the £10bn surplus in last week’s projections, Miles warned, adding, “it’s absolutely enormous.”
BoE’s Greene: trade war uncertainty could hurt dollar’s reserve status
Bank of England interest rate setter Megan Greene has warned that the US dollar’s status as the global reserve currency could be hurt by trade war uncertainty.
Greene said she thought a trade war involving retaliatory tariffs would probably be disinflationary for Britain’s economy.
Exchange rates were likely to be a key way the effect of trade wars would be transmitted across economies, Greene explained, adding:
“It’s also possible that the dollar’s role as a global reserve currency could be undermined a little bit by all of the uncertainty that we’re seeing, and so we don’t know how the exchange rate will behave.”
Von der Leyen: EU will retaliate against US tariffs if necessary
Lisa O’Carroll
The EU will react strongly to any reciprocal tariffs the US may impose on its exports, Ursula von der Leyen, European Commission president has warned.
Von der Leyen says in a speech on Tuesday:
“Europe has not started this confrontation. We do not necessarily want to retaliate, but we have a strong plan to retaliate if necessary.
Our objective is a negotiated solution. But of course, if need be, we will protect our interests, our people, and our companies.”
“Our objective is a negotiated solution. But of course, if need be, we will protect our interests, our people and our companies. I want to be very clear on the aim of our response. We think that this confrontation is in no one’s interest. The flow of goods and services between us is nearly balanced. We are willing to work on the trade balance of goods as well as services.
This is the largest and most prosperous trade relation worldwide. We would all be better off if we could find a constructive solution.”
Welcome news in the eurozone: inflation has ticked down to 2.2% in March, from 2.3% in February.
The drop was due to lower energy prices – which fell by 0.7%, following a 0.2% rise in February.
Services inflation slowed to 3.4%, from 3.7%, although food, alcohol & tobacco inflation picked up to 2.9%, from 2.7%, and goods prices rose by 0.6% having been unchanged in February.
But a global trade war could have implications for prices in the eurozone, and beyond.
ING economist Bert Colijn explains:
Uncertainty around the short-term outlook for inflation remains very high. US tariffs could result in deflationary pressures on the eurozone market as they depress exports and therefore growth. Besides that, it also results in more supply in the eurozone market as the US increases barriers to access.
Retaliatory measures from the European Commission will likely have an upward effect on eurozone inflation, though, as they are essentially a domestic tax that gets introduced and will be paid for by consumers to some extent.
Elsewhere in the data world, the UK’s statistics regulator has criticised the Department for Work and Pensions for a misleading claim about the rise in people receiving disability benefits.
The Office for Statistics Regulation says it was “entirely misleading” to claim in a recent press release that the number of people claiming disability elements of Universal Credit has increased by 383% in the last five years.
Rob Kent-Smith, deputy head of the Office for Statistics Regulation, wrote in a letter to Sir Peter Schofield, Permanent Secretary at the DWP:
The figure does not recognise that the majority of this increase is due to the process of migrating people from legacy benefits, such as Employment and Support Allowance, to Universal Credit over the last few years. When these people are accounted for, the actual increase in the number of people claiming disability elements of Universal Credit is 50%.
After we raised concerns with DWP, the press release was amended on 27th March. The updated version of the press release includes some references to people moving from other benefits and acknowledges that the number of people with no requirement to look for work across Universal Credit health and other benefits since the pandemic has increased by 50%.
However, we consider that these additions do not go far enough.
Kent-Smith is asking the DWP to update the press release by Friday to remove references to the 383% figure, and not use the figure again.
OBR chief Hughes would like to serve second term
Heather Stewart
Over at parliament, Richard Hughes has told MPs that he has let the chancellor know that he would like to serve a second five year term as chair of the Office of Budget Responsibility.
Appearing before MPs on the cross-party Treasury select committee to discuss last week’s spring statement, Hughes was asked whether he would like to stay in the post, after his first term ends on 3 October.
He replied:
“I have written to the chancellor, to the effect that I would be interested in serving a second and final term, earlier this year.”
Asked whether he had heard back from Rachel Reeves, he said he hadn’t, but added:
“I appreciate that the chancellor has a lot on her plate at the moment”.
The OBR’s role in economic policymaking has come under intense scrutiny in recent weeks, as Reeves implemented spending cuts to ensure she is on course to meet her fiscal rules – including £500m of last minute welfare reforms, after the OBR rejected the government’s costing of its plans.
Hughes also sought to reassure committee chair Meg Hillier that he did not believe leaks of aspects of the forecast before the spring statement had come from within the OBR. “I am satisfied that the OBR is not the source,” he said, adding that the Treasury had commenced its own leak inquiry.
China-US shipping rates rising ahead of new tariffs
Joanna Partridge
Rates for shipping containers from China to the United States are rising ahead of “tariff day” according to new figures from shipping analytics firm Xeneta.
The cost of shipping goods to the east coast of the US is up by 9% ($322 for a forty-foot equivalent unit (FEU), a standard shipping container), while it has jumped 16% to the west coast of the US to $383/FEU, Xeneta data shows.
“We live in a volatile market so, while the general direction of travel has been downward for spot rates from the Far East to the US since 1 January, we should expect some bumps in the road,” said Peter Sand, chief analyst at Xeneta.
Average spot rates on container ship journeys from the Far East to the US are expected to increase by $300 – $600 per FEU as a result of General Rate Increases (GRI) by shipping firms. A GRI is the amount by which ocean carriers increase their base rate on certain trade routes, usually to cover rising operating costs and to make sure that shippers remain profitable on certain routes.
Sand added:
“Carriers will chance their arm and push GRIs during times of heightened uncertainty. Nervousness in the market means they can have some success too, even if it seems to defy the underlying balance of supply and demand.”
