18 hours Ago
The latest round of US tariffs announced on 2 April could have sweeping economic consequences, pushing up the risk of a recession in the United States and dragging down global growth, according to Fitch Ratings. The ratings agency said the new tariffs, announced on what is labelled as “Liberation Day” by the US administration, go far beyond what it had previously expected and are already altering the global economic outlook.The tariff regime now imposes a minimum rate of 10% on all US trade partners, with significantly higher levies on 57 selected countries.
As a result, the effective tariff rate (ETR) for EU imports into the US has jumped to about 20%, while the rate on Chinese goods has surged to 64%. These figures compare with Fitch’s earlier March assumptions of 15% for the EU and 35% for China.Other Asian economies have also been hit hard.
Vietnam now faces a 46% tariff, Thailand 36%, Taiwan 32%, India 26%, South Korea 25%, Malaysia 24% and Japan 24%. Sector-specific exclusions—such as semiconductors, pharmaceuticals, copper and lumber—may be negotiated separately.Also Read: Recession, not Liberation Day! India, US and world GDP may slump for Trump tariff 'insanity' We estimate the changes will raise the overall US ETR to about 25%, which would be significantly higher than the 18% we had assumed for 2025 in the March GEO and the highest rate for more than 115 years, Fitch said.
The sharp increase in tariffs is expected to slow down US growth in 2025 to below the 1.7% Fitch had projected in March. The agency also pointed to a recent decline in US consumer sentiment and a noticeable drop in consumer spending growth in January and February, adding to signs of a cooling economy.
Fitch said the higher tariffs would push up consumer prices and squeeze corporate profits in the US. This would hurt consumer spending, as real wages fall, and reduce business investment due to ongoing policy uncertainty. The tariff-induced increase in goods prices, coupled with a recent spike in medium-term inflation expectations among US households, means the Federal Reserve is likely to be more hesitant about further rate cuts in the near future.
Fitch believes these negative effects will outweigh any gains from shielding domestic firms from foreign rivals.Companies listed on the S&P 500 index lost a total of $2.4 trillion in market value during Thursday’s selloff on Wall Street — the biggest one-day loss since 16 March 2020, when the early days of the coronavirus pandemic caused a global market crash.
The S&P 500 closed nearly 5% lower after Donald Trump’s wide-ranging tariffs sparked fears of a full-blown trade war and a global economic recession.The Dow Jones Industrial Average also saw its worst single-day drop since June 2020, while the Nasdaq Composite recorded its largest percentage fall in a day since markets tumbled at the start of the Covid pandemic.The knock-on effects of the tariffs are also being felt globally.
Asia’s growth outlook has taken a hit since Fitch’s last set of projections in March. While some Latin American countries might see a slight benefit from trade and investment being diverted—since most of them will only face the 10% base rate—Fitch warned that the widespread scope of the tariffs leaves little room for such benefits to offset the broader damage to global demand. We think some countries, notably in Latin America where most will face the minimum 10% US tariff rate, could benefit at the margin from trade and investment diversion effects, which would support their economic prospects despite challenges from weaker global demand.
However, the broad-based nature of the tariff hikes constrains the scope for trade diversion, underlining the likelihood that the trade war will have adverse effects all round, it said.Fitch added that some countries might be able to cushion the blow with targeted monetary and fiscal measures or negotiate better bilateral deals with the US. But it also warned that retaliation by major trade partners could lead to a further round of tariff increases by Washington.
.
