Simon Evenett is Professor of Economics at the University of St Gallen, and Founder of the St Gallen Endowment, the new home of the Global Trade Alert, and Johannes Fritz is the CEO of the St Gallen Endowment for Prosperity Through Trade
On 2 April 2025, President Trump announced sweeping tariff increases which, if sustained, probably amounts to the most significant unilateral shift in American trade policy since the Smoot-Hawley Tariff Act of 1930. By declaring large and persistent goods trade deficits a national security threat, the administration abandoned a decades-long commitment to open markets.
Over 60 trading partners were hit with tariff increases exceeding 17% and the rest with a tariff hike of 10%. The implications extend far beyond American borders, threatening to fragment global supply chains, provoke retaliatory measures, and potentially mark the end of the rules-based trading system that has underpinned global commerce since WWII.
The decision: reciprocal tariffs and their scope
The core of the April 2nd decision rests on the declaration that large and persistent goods trade deficits constitute a threat to US national security. This framing provides the legal justification for the sweeping tariff increases imposed on virtually all US trading partners.
The scale of these increases is unprecedented in modern times – bear in mind that the minimum 10% increase exceeds the jump in US tariffs caused by implementing the Smoot-Hawley Act. Some nations face dramatically higher rates, with Vietnam, for example, facing a 46% import tax increase.
According to the administration’s published methodology document, the bilateral trade surplus relative to the bilateral imports of the US appears to be the primary driver of the tariff calculation for countries facing import tax increases above 10%. No adjustments appear to have been made based on the actual policy mixes of trading partners, rhetoric about unfair trade practices notwithstanding.
Canada and Mexico received special treatment – they remain subject to a separate 25% import tariff increase, with potential reductions if they meet revised NAFTA (USMCA) conditions. The administration has exempted certain product categories from these additional tariffs for the time being. Steel, aluminium, autos, and auto parts – already subject to 25% additional tariff increases under previous measures – were excluded. Additional exemptions were granted for copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy products.
If implemented as announced, these tariffs would restore US import duties to levels not seen since the early 20th century. The magnitude of these increases – particularly for the hardest-hit countries – makes it unlikely that currency depreciation alone could offset their impact, suggesting significant trade disruption lies ahead. The repudiation by the US of the most favoured nation principle – which ensured equal tariff treatment among trading partners – represents another significant blow to the rules-based global trading system.
A marked shift in US trade policy thinking
These measures reflect a fundamental shift not only in US policy but also in trade policy philosophy. The administration’s Theory of Harm, as articulated in the Executive Order, posits that trading partners’ suppression of domestic wages and consumption has artificially reduced demand for US exports while enhancing their own global competitiveness. This represents a significant expansion of arguments previously directed primarily at China, now generalised to encompass virtually all trading partners with bilateral surpluses.
The policy abandons three core assumptions that underpinned post-war trade liberalisation: (1) that US leadership in lowering trade barriers would be reciprocated; (2) that such liberalisation would lead to economic convergence and increased consumption among trading partners; and (3) that the US would not accrue large, persistent trade deficits.
By explicitly targeting bilateral trade balances rather than specific unfair practices, the administration has moved away from the WTO’s principles of multilateralism and non-discrimination toward a more transactional approach focused on numerical outcomes.
Recent American tariff measures represent a seismic shift in the global trading landscape, one that threatens to unravel decades of economic integration
Exceptions matter
Figure 1 shows the wide variation in the headline tariff rates announced in the Rose Garden for US trading partners. On these numbers, the UK emerges as a relative winner within Europe with only a 10% increase compared to the EU’s 20%. Switzerland stands as Western Europe’s biggest loser, with a 32% import tax increase.
Figure 1. Reported headline tariff increases can be misleading
Exceptions: (1) Country-level exceptions for IEEPA and reciprocal rates CAN, MEX, RUS, BLR, CUB, PRK; (2) Product-level exceptions as in Annex II and IEEPA exclusions; (3) Aluminium, steel + derivative product codes and rates from resp. EO; (4) Automobile + parts product codes and rates from resp. EO.
Note: Reciprocal rates as in Annex I, not as shared with press in Rose Garden.
Source: Global Trade Alert, author’s calculations using USITC DataWeb import statistics.
However, a more accurate picture emerges when the sectoral exceptions mentioned earlier are taken into account. For example, Switzerland exports billions of dollars of gold and pharmaceuticals to the US. Our estimate of the effective import tax increase faced by Switzerland is 18.2%. Big gaps between announced and effective import tax increases were also found for Belgium, Ireland, and South Africa.
The presence of exceptions also depresses the expected revenue take from the 2 April 2025 tariff increase. For the sake of making these back-of-the-envelope calculations we assume – against our better instincts – that import volumes do not change once the new tariffs are imposed. We can these estimate the (static) upper bound of revenues collected by the US Federal Government by these tariff moves.
No more than $478 billion will be collected. Ten trading partners could pay $10 billion or more. Those ten nations pay the lion’s share of the new tariff revenues collected, estimated to be no more than $362 billion.
Figure 2. No more than $498 billion of revenues will be generated by reciprocal tariffs
Source: Global Trade Alert, author’s calculations using USITC DataWeb import statistics. Revenue calculated using additional tariff X 2024 imports.
Given that the US government spent $6.8 trillion in fiscal year 2024, the extra tariff revenue that will follow the Rose Garden announcement will pay for less than four weeks of Federal government outlays. Alternatively scaled, extra tariff revenues on this scale would finance no more than a fifth cut in Federal individual taxes or a quarter of 2024’s budget deficit.
Commercial implications: corporate footprint recalibration
Southeast Asian nations are hit disproportionately under the new tariff regime, with Vietnam facing a staggering 46% additional tariff increase. Tariff increases on this scale effectively upends ‘China+1’ strategies that saw factories moving from North East to South East Asia.
The relatively lenient treatment of Canada and Mexico on 2 April 2025 makes North American production more attractive compared to Asian alternatives, strengthening incentives to nearshore. This a reminder that tariff-ridden cost competitiveness is relative.
Uncertainty and future policy trajectory
The uncertainty created by the Rose Garden announcement extends far beyond their immediate economic impact. Major trading powers, including the EU, will likely retaliate, raising the spectre of an escalating tariff spiral.
The critical question is whether these retaliatory measures will remain narrowly targeted at the US or if they will trigger broader protectionist responses. The fate of the open world trading system now rests with officials in these major economies, whose responses will determine whether we face a managed adjustment or a chaotic unravelling of global economic integration.
Additional uncertainty stems from the lack of clarity around how frequently these tariff increases will be recalculated based on changes in bilateral trade balances. This adds to the instability in the environment for trade-dependent businesses, potentially discouraging long-term investment in export-oriented activities. In the hardest-hit economies, expect monetary policy easing to partially offset lost export sales, potentially triggering currency movements that further complicate the trade picture.
The deflection of manufactured goods from Asian exporters to other markets – not just from China but from many affected Asian nations – could trigger additional protective measures in third countries, further fragmenting the global trading system. This potential for trade diversion creates second-order effects that may be as disruptive as the initial tariff shock.
Countries that maintain relatively open import regimes may find themselves facing import surges that generate domestic political pressure for additional protection, creating the risk of a global protectionist cascade beyond direct retaliation against the US.
Implications for the world trading system
Recent American tariff measures represent a seismic shift in the global trading landscape, one that threatens to unravel decades of economic integration. By explicitly targeting bilateral trade balances and abandoning the principle of equal treatment, these measures fundamentally reshape the incentives facing multinational corporations and exporting nations.
The resulting uncertainty – around retaliation, recalculation, and redirection of trade flows – complicates decision-making and planning by international business.
The philosophical underpinnings of these measures challenge the very foundations of the multilateral trading system. By positioning trade deficits themselves as threats to national security rather than focusing on specific unfair practices, the US has moved away from rules-based trade governance toward a results-oriented and probably a more transactional approach.
This shift, if it persists and spreads to other major economies, could accelerate the fragmentation of global trade into competing regional blocs defined by strategic rather than economic considerations. The coming months will determine whether we witness a managed recalibration of global trade or the beginning of a more profound deglobalisation that reshapes the world economy for decades to come.
This article was originally published on VoxEU.org.