Experts explain why President Trump suspended tariffs
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On April 9, 2025, US President Donald Trump announced that he would suspend the 'reciprocal tariffs' that had just begun that day for 90 days. At first glance, this policy shift appears to be nothing more than a reckless one-day change of policy, but political and economic experts point out that it may actually be a 'tactical retreat.'
This chart explains why Trump backflipped on tariffs. The economic damage would have been huge
https://theconversation.com/this-chart-explains-why-trump-backflipped-on-tariffs-the-economic-damage-would-have-been-huge-253632
◆ Damage caused by tariffs to the global and US economies
Robert Wasick, associate director of the Centre for Policy Research at Victoria University in Australia, and Professor James Gieseke used a global economic model to predict how the Trump administration's tariff policies will affect the macroeconomy.
We simulated the economic impact on three countries - the United States, which imposed reciprocal tariffs, Australia, which announced that it would not impose retaliatory tariffs, and China, which implemented retaliatory tariffs - by suspending tariffs and by not suspending them, and the results are as follows.
| If it doesn't stop | If it stops | |||||
|---|---|---|---|---|---|---|
| America | 2025 | 2040 | 2025-2040 average | 2025 | 2040 | 2025-2040 average |
| Real consumption | -2.4% | -1.3% | -1.2% | -1.9% | -1.0% | -1.0% |
| Real GDP | -2.6% | -2.4% | -2.1% | -2.0% | -1.8% | -1.6% |
| Real investment | -6.6% | -4.2% | -4.6% | -4.8% | -3.1% | -3.4% |
| employment | -2.7% | 0.0% | -0.4% | -2.1% | 0.0% | -0.3% |
| Australia | 2025 | 2040 | 2025-2040 average | 2025 | 2040 | 2025-2040 average |
| Real consumption | 0.6% | 0.2% | 0.2% | 0.4% | 0.1% | 0.2% |
| Real GDP | 0.4% | 0.3% | 0.3% | 0.3% | 0.3% | 0.2% |
| Real investment | 2.9% | 1.0% | 1.4% | 2.3% | 0.8% | 1.1% |
| employment | 0.6% | 0.0% | 0.1% | 0.4% | 0.0% | 0.0% |
| China | 2025 | 2040 | 2025-2040 average | 2025 | 2040 | 2025-2040 average |
| Real consumption | -0.4% | -0.6% | -0.5% | -0.5% | -0.6% | -0.6% |
| Real GDP | -0.3% | -0.2% | -0.2% | -0.4% | -0.3% | -0.3% |
| Real investment | 0.6% | -0.1% | 0.1% | 0.3% | -0.2% | -0.1% |
| employment | -0.2% | 0.0% | -0.0% | -0.3% | 0.0% | -0.1% |
While the overall trends are similar before and after the suspension, the numbers show that the scenario in which the tariffs are suspended would be significantly less damaging to the US economy.
Based on these results, Wasick et al. concluded, 'Why did President Trump reverse his broad-based tariffs? The answer is simple: the economic costs to the United States were too great.'
Looking more closely at the numbers, if there is no pause, real U.S. consumption is projected to fall 2.4% in 2025 alone, real gross domestic product (GDP) to fall 2.6%, employment to fall 2.7%, and inflation-adjusted real investment to shrink by 6.6%.
The impacts would be huge, with experts pointing out that 'these are not trivial matters. They represent major contractions that will have a profound effect on everyday life, including job losses, rising prices, and reduced household purchasing power. The current unemployment rate in the United States is 4.2%, and if this scenario plays out, for every three unemployed Americans, two more would join the ranks of the unemployed.'
According to Wasick and his team, it is highly likely that similar predictions were made within the US government. In addition, financial markets were greatly shaken, with stock prices of major companies that drive the US economy plummeting across the board. Based on these points, Wasick and his team analyzed that the recognition that 'this tariff policy is economically unsustainable and will permanently weaken the US's economic power' was shown, which led to the suspension of the tariffs.
However, the suspension of tariffs announced on April 9th is not comprehensive, and only halted additional tariffs on the approximately 70 countries that did not impose retaliatory tariffs, leaving the flat 10% 'reciprocal tariffs' in place. In addition, a 125% tariff will be imposed on China, which imposed retaliatory tariffs of 84%, and the previously announced 25% tariff rate on Canada and Mexico will remain unchanged.
A flat 10% tariff would be less distortionary than a global tit-for-tat tariff war, and would minimize the impact of massive retaliatory tariffs from China. Still, the tariffs have caused significant pain to the U.S. economy, with real investment falling 4.8% and employment shrinking 2.1%.
Countries that distance themselves from retaliatory tariffs also see benefits
Another point is that countries that do not impose retaliatory tariffs may actually enjoy some benefits.
The table created by Wasik et al. (excerpted and reproduced here) is based on the assumption that all countries other than Australia, Japan, and South Korea, which have announced that they will not impose retaliatory tariffs, will impose retaliatory tariffs at the same rate as the United States. However, a look at the Australian data shows that if the tariffs were not suspended, the positive figures for real investment and other factors would tend to be larger.
| If it doesn't stop | If it stops | |||||
|---|---|---|---|---|---|---|
| Australia | 2025 | 2040 | 2025-2040 average | 2025 | 2040 | 2025-2040 average |
| Real consumption | 0.6% | 0.2% | 0.2% | 0.4% | 0.1% | 0.2% |
| Real GDP | 0.4% | 0.3% | 0.3% | 0.3% | 0.3% | 0.2% |
| Real investment | 2.9% | 1.0% | 1.4% | 2.3% | 0.8% | 1.1% |
| employment | 0.6% | 0.0% | 0.1% | 0.4% | 0.0% | 0.0% |
One reason for the positive impact on the economies of countries that did not impose retaliatory tariffs is that exporters in China, Europe, and other countries that have abandoned the U.S. market have redirected their goods to free markets such as Australia, an effect known among economists as ' trade diversion .'
Additionally, reduced global demand for capital, particularly in the United States and China, will lead to lower interest rates globally, which will stimulate investment elsewhere and is expected to support small but sustained pick-up in GDP and household consumption.
Conclusion and future developments
Given these findings and President Trump's frequent use of tariffs as a diplomatic card, Wasik et al. point out that 'tariffs appear to be at the core of the Trump Administration's economic policy. President Trump's decision to suspend broad tariffs may therefore merely represent a tactical retreat rather than a shift in policy philosophy. Moreover, the revised strategy of imposing high tariffs on China while keeping tariffs lower elsewhere may reflect an attempt to focus on key issues while avoiding unnecessary backlash from allies and neutrals.'
As for what will happen next, he commented, 'While it remains to be seen whether this limited approach is sustainable, it has postponed the most severe economic pain. Whether that pain returns will depend on how things unfold over the next 90 days.'
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in Note, Free Member, Posted by log1l_ks