The United States is currently experiencing an unprecedented spike in average customs duties. As of late 2024, these responsibilities have exploded to 18.6%. That’s up plenty from only 2.5% at the close of 2024. In 2016, before Donald Trump’s first term, the rate stood at a mere 1.5%. These escalating trade tensions have fueled the steepest tariff hike in modern history. This sudden increase has incredibly significant consequences for the US economy and its trading partners. Recent analyses have found the US economy primed for growth. Yet the longer-term global economic effects are poised to grow more severe.
This progress arrives alongside news the US second quarter GDP rebounded by 0.7% q/q, showing perhaps some underlying strength in the economy. On the bright side, that 2026 growth forecast has been increased to 2.1%, indicating an optimistic outlook for at least the short-term ahead. Analysts caution that these positive indicators may obscure the underlying stress that Trump’s trade policies place on capital markets and international trade relations.
Impacts of Rising Customs Duties
In a striking change in US trade policy, customs duties have more than doubled on an inflation-adjusted basis. By 2025, average tariffs are expected to reach in the neighborhood of 15% for advanced economies and 21.4% for emerging economies. This development represents a huge departure from historical tariff rates. Tariffs in recent decades have generally remained much lower. These tariffs are too low to be meaningful import embargoes or produce enough economic pain to affect a change. What they do is raise the cost of all goods and services.
Thanks to the surge in customs revenues, for the first time in years, the US general government deficit is heading down again. This deficit is expected to reach about 5.4% of GDP this year. This fiscal consolidation might be a boon for the federal budgetary health. For one, it would greatly damage the state of global trade overall. Or how they may do long-term damage to economic growth.
Our GDPNow model currently predicts that the US economy will grow at a robust rate during the third quarter of this year. Yet Scope Ratings is cautioning that, in combination, the medium-term outlook for US growth has been revised downwards to a mere 1.8% for 2025. The mixed signals surely paint a confusing picture of economic health again driven almost entirely by trade policy.
The Global Economic Picture
US trade tensions hurt ordinary people — and those effects extend well beyond America. According to Scope Ratings, these geopolitical tensions may cause global output to contract by up to 0.7 percentage points over the medium term. This dramatic reduction is indicative of the highly connected nature of global markets and how shifts in US policy can influence those markets across the globe.
Our trading partners have committed more than a whopping $1 trillion in direct investments in the US. Most of all, they hope to please Trump’s White House enough to stop the threat of future escalation from further increased tariffs. What we’re seeing is other countries’ strategic efforts to use their market power to win better trading terms. They’re stuck wrangling through the complexities of the one-sided tactics that Trump wants to pursue.
Even after these investments, the strain on worldwide production is still enormous. Those disappointing price dynamics partly explain why Scope Ratings has cut its global growth forecast by 0.4 pps to 3.0%. Taking such steps is a clear sign that countries are worried about long-term economic stability as they continue to deal with the ramifications of rising protectionism.
Bilateral Negotiations and Regional Competition
Second, Trump’s preference for bilateral negotiations over multilateral agreements has moved the goalposts in developing trade relations. This method reduces the chance of backlash from other trading partners. Simultaneously, it invites regional trading clusters to compete with each other for preferential trading terms with the US. Countries need to change their economic approaches to suit US geopolitical goals. Consequently, this frequently results in greater commitment to their home markets.
Pros Cons This move away from multilateral negotiation toward a bilateral negotiation style has brought positive and negative outcomes to the US and its trading partners alike. It offers strong opportunities for bipartisan, targeted agreements. That’s not all—it raises profound questions about the long-term sustainability of those arrangements. This push toward one-on-one negotiations could threaten the spirit of economic cooperation in general as well as foster an adversarial climate in global markets.