Tax War 2025 could cost the global economy $1.4 trillion
Economists estimate that the world could face economic losses exceeding $1.4 trillion if a tax war between the US and its trading partners reignites in 2025.
A full-scale trade war between the US and its partners could lead to global economic losses of up to $1.4 trillion, according to a newly released report.
Economists from Aston Business School modeled various scenarios, including the possibility of a full-scale global retaliation against the US following its imposition of new tariff measures.
Aston's calculations indicate that such a trade conflict could result in global welfare losses amounting to as much as $1.4 trillion.
The report explains that rising tariffs lead to higher prices, reduced competitiveness, and fragmented supply chains—similar to the US-China trade war of 2018.
It states that Donald Trump’s potential return to power in 2025 has fueled a wave of protectionism, reshaping the global trade landscape within weeks.
Researchers outlined six scenarios, ranging from initial tariffs on Canada, Mexico, and China to a full-scale trade war.
US Prices & GDP Impact: Prices in the US rise by 2.7%, while real GDP per capita declines by 0.9%. Canada’s welfare drops by 3.2%, and Mexico’s by 5%.
Retaliation from Canada, Mexico, and China: US losses deepen to 1.1%, while Canada’s welfare declines by 5.1% and Mexico’s by 7.1%.
25% US Tariff on EU Goods: US-EU trade contracts sharply, disrupting European manufacturing and reducing US welfare by 1.5%.
The EU retaliates with a 25% tariff on US goods, driving up prices in both regions and amplifying welfare losses. The UK benefits slightly from trade diversion.
US Expands Tariffs Globally
Global trade shrinks drastically, prices surge, and North America's welfare takes a major hit. The UK experiences a sharp drop in trade volume.
Full-Scale Global Retaliation
Worldwide trade declines significantly, causing widespread disruptions. The US faces severe welfare losses, while global economic damage reaches $1.4 trillion.
Scenario 6: Full Trade War
This scenario poses severe risks for highly trade-dependent economies like the UK, which is still adjusting post-Brexit.
The report highlights that as a trade-reliant nation, the UK stands at a crossroads. Trump’s tariffs could disrupt supply chains and exports, yet also create new trade opportunities, particularly for increased exports to the US.
