As U.S. President Donald Trump fiddles with tariffs on some goods from Canada, China and Mexico, analysts share their estimations on how that might influence key economic indicators, such as inflation, employment and GDP.
On Sunday, March 9, President Donald Trump said tariffs on certain goods from Canada and Mexico, set for April 2, might increase. Despite constant changes of deadlines, delays, and pauses, the U.S. President is still intent on imposing about 25% tariffs on the neighbouring countries as well as China.
Mr Trump did not comment on the possibility of recession in 2025, which is largely seen as a likely consequence of the new policies often called a “trade war,” according to the latest Conference Board’s consumer survey. The negative consumer sentiment is also supported by numerous expert research.
Thus, calculations by the Federal Reserve Bank of Boston suggest that the early introduced tariffs could raise U.S. core inflation (excluding food and energy) by 0.5-0.8 percentage points. Other prospective tariffs Trump has earlier proposed, but not yet implemented, such as a 60% tariff on Chinese goods and a 10% tariff on all global imports, could push core inflation up by 2.2 percentage points. The latest core inflation rate for the period of Jan. 2024 to Jan. 2025 was 3.3%. This is lower than the long term average of 3.68%, but a little higher than 3.2% as of Jan. 2024 and significantly higher than pre-pandemic indicators (between 1.6% and 2.3% during 2015-2020).
The given study also found that 10% of core consumer spending in the U.S. depends on imported goods, whose prices could rise due to tariffs. The largest sources of these imports are China, Mexico, and Canada – exactly the countries which face significant tariff increases. Some U.S. industries also rely heavily on imports, especially pharmaceuticals, medical products, and motor vehicles, many of which come from nearby countries. Other sectors that could be hit hard by price increases include clothing, healthcare services (like hospitals and nursing homes), electronics (such as video, audio, and photo equipment), and food services.
Besides the inflation rise, experts also believe that tariffs on the U.S.’s key trading partners are more likely to harm GDP and employment in all the countries involved. According to calculations by Brookings Institution, the U.S. imposing 25% tariffs on Mexico and Canada could reduce its GDP growth by 0.24 percentage points. If Mexico and Canada respond with the same 25% tariffs on U.S. goods, the drop could reach 0.32 percentage points.
Mexico and Canada depend heavily on U.S. trade, sending about 80% of their exports there. They could lose over one percentage point of GDP growth due to these tariffs. If they retaliate fully, their losses could exceed three percentage points. Whether all three countries could easily switch to enhanced domestic consumption is a big question.
Job losses would follow a similar pattern. The U.S. could lose 0.11-0.25% of its total jobs. In Canada, losses could range from 1.3% to 2.5%, and in Mexico, from 2.3% to 3.6%, if full retaliatory tariffs are imposed.
If the tariffs linger long-term, trade between the U.S., Canada, and Mexico would drop significantly. Thus, U.S. exports to Canada and Mexico could shrink by 6-9%. Canadian exports to the U.S. could fall by 9-19%, while Mexican exports to the U.S. could drop by 14-26%.
Industries most affected will include computers, electronics, and transport. U.S. mining, lumber, and metal exports could fall by 76-97% if Canada and Mexico fully retaliate. Meanwhile, Canada and Mexico are expected to send 40-68% fewer cars to the U.S., making imported cars more expensive.
As for China, its national economy relies heavily on exports. If U.S. tariffs stay, China’s exports to the U.S. could drop by 25-33%, according to economist Harry Murphy Cruise. Since exports make up about 20% of China’s earnings, a 20% tariff would reduce demand from other countries and significantly shrink China’s trade surplus. At the same time, analysts say that while tariffs may slow down Chinese manufacturing, they cannot completely stop or replace it easily.
There are certain goods, like solar panels, that are basically exported only from China and cannot. be easily substituted. Besides, Chinese factories produce high-end tech that is in demand today in large quantities at a low cost. To top it all, China has been adjusting to U.S. tariffs for years since President Trump’s first term. Some Chinese companies have moved their factories to other countries. Many businesses now use Vietnam and Mexico to ship goods and avoid tariffs.
