Will the world head towards a trade war after Trump’s election victory? What would the consequences be?

If Trump proceeds with a universal tariff policy following his election victory, the risk of a global trade war will increase significantly. Unlike previous tariffs targeting specific countries or industries, a blanket tariff could lead to widespread trade conflicts, with various countries potentially taking retaliatory measures, such as imposing tariffs on U.S. goods or introducing new trade barriers to protect their economies. The following are some potential consequences:

1. Rising Prices for Goods: Tariffs generally lead to higher prices for imported goods, costs ultimately borne by consumers. A 10-20% tariff on all imports could raise the price of many everyday items, potentially driving up inflation. This cost increase would impact not only U.S. consumers but also countries with close trade ties to the United States.

2. Disruption of Global Supply Chains: Global supply chains rely on the advantages and divisions of labor between countries. Higher tariffs may force multinational companies to reconsider their production and supply chain layouts, causing supply chain interruptions, relocations, or increased manufacturing costs that could harm business profitability.

3. Slowing Economic Growth: Historically, trade wars have had a negative impact on global economic growth. Tariff barriers reduce trade flows, weaken consumer and investor confidence, and can stifle economic growth. Institutions like the IMF have warned that tariff frictions could reduce global GDP, particularly harming open economies.

4. Backfire on U.S. Businesses: Although tariffs aim to protect domestic industries, many U.S. companies rely on global supply chains and export markets. Retaliatory tariffs from trade partners could reduce the competitiveness of U.S. exporters, especially in agriculture, automotive, and technology sectors. Additionally, higher costs for imported raw materials could increase manufacturing expenses, weakening the international competitiveness of American businesses.

5. Increased Geopolitical Tensions: Broad tariffs are not only an economic issue but could also lead to diplomatic friction. Allies like the EU, Canada, and Japan might be dissatisfied with U.S. tariff policies, while major powers like China may take a harder line in response. This could further affect bilateral or multilateral political cooperation, especially in international affairs.

6. Financial Market Volatility: Trade war uncertainty can cause significant financial market volatility. Tariff announcements often lead to fluctuations in stock and currency markets, with investors seeking safer assets, potentially leading to declines in asset prices. The U.S. dollar’s exchange rate may also be impacted, exacerbating market instability.

In summary, if Trump implements universal tariffs and ignites a global trade war, it would not only impact various national economies but also add new uncertainties to the global economic landscape.