"If a Trade War with 25% Universal Tariffs Occurs... Global Impact of 1.4 Trillion Dollars"

The Donald Trump administration in the United States is expected to impose a 25% tariff on all countries, and if countries retaliate with counter-tariffs, the global economy is projected to suffer a blow of 1.4 trillion dollars (approximately 2,000 trillion won).

On the 1st (local time), according to the Financial Times (FT) of the UK, the results of a study by Aston University in the UK analyzed the economic damage by dividing the process of expanding the scope of tariffs imposed by the Trump administration and the increasing number of retaliating countries into six stages.

The researchers assumed six scenarios based on bilateral trade data from 132 countries in 2023: △ the US imposes up to a 25% tariff on Canada, Mexico, and China, and each country retaliates in kind △ the US expands the 25% tariff to the European Union (EU) and the EU retaliates △ the US imposes a 25% tariff on all countries and each country retaliates, among others.

Even if only the second scenario, where Canada and Mexico respond to US tariffs with a 25% retaliatory measure, is reached, the exports of all three countries plummeted by more than 30%. In terms of real per capita Gross Domestic Product (GDP), Mexico and Canada saw decreases of 7% and 5%, respectively, which was a greater impact than the 1.1% decrease in the US.

However, if the trade war expands to the EU and then globally, the impact of inflation was most pronounced in the US. US exports decreased by 66% and imports by 46%. In this case, the global economic impact amounted to 1.4 trillion dollars.

In the case of South Korea, which has a large scale of automobile exports to the US, it was found that while there might be slight benefits from the trade war until the scenario of EU retaliatory tariffs, it could not avoid damage if it expands globally.

The research team predicted that if countries impose 25% tariffs on each other, it would have a similar effect to the trade war of the 1930s that exacerbated the Great Depression.

Meanwhile, Scott Besant, the US Secretary of the Treasury, announced on the 31st of last month that there would be an announcement regarding President Donald Trump's reciprocal tariff announcement at 3 PM Eastern Time on the 2nd (4 AM on the 3rd Korean time). The scope of reciprocal tariffs to be announced by country is unclear, and it is still unknown how countries will respond to reciprocal tariffs.

Yisong Ryeol, Hankyung.com reporter yisr0203@hankyung.com