Trump's Tariffs Cripple the World Economy: Recession Looms Large

Trump's Tariffs Risk Repeating Great Depression Mistakes

On April 2, 2025, Donald Trump signed an executive order he dubbed “Liberation Day”—an unprecedented tariff offensive that rattles the foundations of international trade and, with it, the global order forged after World War II. With tariffs of 20% on the European Union (EU), 25% on Mexico and Canada, an additional 20% on China, and targeted levies on Japan, South Korea, India, and Vietnam, among others, the U.S. President has unleashed a storm whose shockwaves extend far beyond economics, reshaping geoeconomics, geopolitics, and global stability. This maximalist, unilateral move is no mere trade tweak; it’s a geostrategic gauntlet, echoing past crises and raising urgent questions about the future. Are we witnessing the prelude to a new Great Depression or the birth of a world splintered into hostile blocs?

I read with astonishment the remarks of columnists, politicians, and analysts on this freshly ignited trade war. Ideological extremism, flippancy, and a lack of depth or rigour in tackling such complex issues can only be called one thing: populism—those glib answers to intricate problems we’ve come to recognise all too well. Once confined to the declining caliber of political classes, this affliction now runs rampant across the globe. It seems levity is a new, contagious virus, blind to the fallout of this disastrous tariff war—a catastrophe as predictable as it was preventable. This is the handiwork of tacticians who, on a good day, fancy themselves strategists, or economists—or worse, geoeconomists—when, at best, they’re microeconomists, however successful they may have been in business. But we all know the havoc wreaked by that volatile cocktail of megalomania, ignorance, extremism, and stupidity (oops, pardon the redundancy): disaster, recession, crises, instability, and uncertainty. Party lines don’t matter—this mix is always lethal. And it’s all in the hands of political classes, many of whom lack the stature, geostrategic vision, education, courage, agility, or even a decent bookshelf. (Politicians once tried to hide their bibliophobia; now, I’m told, they boast about it.)

A Blanket Offensive: Nations and Sectors Under Siege

Trump’s tariffs strategy spares neither ally nor foe, embodying what political scientist Joseph Nye termed “the use of economic power as a weapon of coercion.” China, with its hefty trade surplus against the U.S., faces an extra 20% tariff on top of the existing 10% from March, likely amplifying its sway in Asia and Africa and cementing Xi Jinping’s vision of “globalisation with Chinese characteristics,” as laid out in Davos 2021.

Mexico and Canada, partners in the USMCA (the revamped NAFTA dubbed “NAFTA 2.0” and signed by Trump in 2020), see their integration falter—a bond ECB President Christine Lagarde called “a pillar of hemispheric stability”—with 25% tariffs disrupting vital supply chains in automotive and energy sectors. The EU, meanwhile, takes a 20% hit, with threats of up to 200% on wines, champagne, and spirits, battering Germany (cars), France (agribusiness), and Italy (luxury goods). Spain’s olive oil, wine, and black olives—cornerstones of an agroindustry hitting unprecedented heights—are now at risk.

Spain, with 1.5% of its GDP tied to the U.S. market, epitomises the vulnerability of mid-sized economies to unilateralism. Economist Luis Garicano warns that the olive oil sector alone could lose up to €300 million annually without alternative markets, while wine and black olives—haunted by the 35% tariff of 2018—face shrinking U.S. market share. The automotive sector, with firms like SEAT and suppliers woven into global chains, suffers collateral damage, and a 25% tariff on Venezuelan oil importers will jack up energy costs. “Protectionism doesn’t just raise prices; it fractures the value chains underpinning our economic model,” former Spanish minister Josep Piqué once cautioned—a warning that rings truer than ever.

Other partners like Japan and South Korea face a flat 10% tariff, while Russia and Iran could see harsher secondary levies for geopolitical reasons. This indiscriminate punishment varies in flavour, tailored to the bilateral rapport with Trump 2.0’s administration.

Trump's Tariffs End Global Trade’s Golden Age

Global commerce, already battered by the pandemic and the Ukraine war, now faces a systemic rupture. The World Trade Organisation (WTO), which former U.S. Trade Representative Robert Zoellick—a dyed-in-the-wool Republican—called “the imperfect guardian of globalisation,” teeters on irrelevance. 

The IMF forecasts a global GDP dip of 0.3 points in 2025 and 0.6 in 2026, but Aston University ups the ante: in a tit-for-tat scenario, losses could hit $1.4 trillion. Integrated supply chains, especially in automotive and electronics, crack under the strain, with goods crossing borders multiple times before final assembly.

How will Trump’s Hispanic supporters explain this to Spain’s wine, olive, oil, canning, and auto parts producers—sectors poised to take a hit, however small it may seem in the grand scheme of exports? We’re barreling toward stagflation, cheered on by the ignorant applause of far too many.

The EU estimates a 20% tariff could halve its exports to the U.S., while Mexico and Canada might lose over 30% of their trade with their northern neighbour. China, meanwhile, will redirect surpluses to Europe, ramping up competition and destabilising prices. “Protectionism is a regressive tax that punishes the poorest,” Nobel laureate Paul Krugman has said—a truth gaining weight as basic goods grow pricier in the U.S. and beyond. We’re stepping into what Ian Bremmer calls “weaponised deglobalisation”: a world where trade divides rather than unites.

Economic Fallout: Inflation, Stagnation, and Asymmetries

The economic toll of Trump's tariffs is multidimensional and brutal. In the U.S., GDP could shrink 0.8% in 2025, with after-tax income dropping 2.1%, per early estimates, while inflation climbs 2-3% annually, eroding the purchasing power of the middle and working classes. “Trade wars have no winners, only degrees of losers,” warned former Treasury Secretary Larry Summers—a caution Trump shrugs off. Uncertainty stalls private investment, bolstering a dollar that squeezes emerging markets.

In the Eurozone, limping along at 0.9% growth in 2024, the ECB slashed its 2025 and 2026 forecasts by 0.2 points. But a 20% tariff could shave up to a full point off Europe’s GDP in three years, per BBVA Research. In a milder scenario with a 10% tariff, growth would hover below 1% annually for four years; at 25%, contraction could range from 0.33% to 0.87%. Germany (with 14% of its auto exports to the U.S.), France (wines and cheeses), and Italy (luxury goods, 30% of whose demand hinges on the U.S.) are most exposed.

Spain, though less affected in absolute terms, isn’t spared: its GDP could drop 0.5 points, with olive oil and wine among the hardest hit. “Tariffs are an exogenous shock that magnifies our structural weaknesses,” noted ECB chief economist Philip Lane.

Geoeconomics and Geopolitics: A Fractured Chessboard

Geoeconomics shifts under this offensive’s weight. The U.S. aims to reindustrialise at its partners’ expense, luring foreign investment with punitive tariffs, while Europe faces an existential bind: pivot to China (a mid-to-long-term suicide) and India, or bow to Washington’s demands, like buying more U.S. gas or weapons. Mexico and Canada, deeply intertwined with North America, risk becoming economic satellites, while China tightens its grip on the Global South.

Geopolitically, Trump's tariffs are wielded as leverage, paired with threats to scale back NATO’s umbrella—a move Angela Merkel branded “a breach of the transatlantic contract.” Russia and China, though bruised, could exploit distrust in the U.S., cementing ties in Africa and Asia. “Freedom and democracy can’t survive without the free trade that sustains them,” Margaret Thatcher declared in 1988—a warning that echoes amid this assault on multilateralism. Konrad Adenauer, architect of modern Europe, put it just as starkly in 1957: “Free trade is the bedrock of peace and prosperity among nations.” Trump’s protectionism defies that foundational vision.

Shock Strategy: Boldness or Recklessness?

Trump’s tariffs tactic is pure maximalism: sky-high tariffs as a starting point to force concessions. “Negotiating is like fighting—you’ve got to scare the other side first,” he wrote in The Art of the Deal.

The EU is gearing up with €26 billion in retaliatory tariffs—steel, aluminum, whiskey, jeans, motorcycles, peanut butter. China might choke off rare earth exports, while Canada and Mexico, more vulnerable, may partially cave.

Historical Lessons: Hoover’s Ghost and Beyond

History offers chilling parallels. The 1930 Smoot-Hawley Act, pushed by Herbert Hoover, hiked tariffs to an average of 20%, sparking reprisals that slashed global trade by 66% and turned a severe recession into the Great Depression. Milton Friedman and Anna Schwartz confirmed as much in their 1963 Monetary History of the United States. Trump’s tariffs, averaging over 20% in a far more interconnected world, could trigger a similar downward spiral.

Another touchstone is the 1970s, when Richard Nixon slapped a 10% tariff on imports in 1971 to strong-arm trade partners. It won concessions but fueled runaway inflation and strained alliances. Ronald Reagan, by contrast, championed free trade as a pillar of liberty: “Open commerce strengthens democracy and weakens tyranny,” he said in 1986.

Trump's Tariffs: Rupture or Renewal?

Trump’s “Liberation Day” doesn’t free—it shackles the world to perilous uncertainty. Trump's tariffs transcend trade, redefining alliances and threatening global stability. Europe, and Spain in particular, must respond with resolve and pragmatism, bolstering internal cohesion and seeking new markets. As Thatcher argued, free trade underpins liberty; its collapse endangers not just our prosperity but our way of life. Adenauer and Reagan reminds us that peace and democracy hinge on economic openness—ignoring this flings open the door to chaos.

We risk sliding into a world of clashing blocs, where cooperation is a distant memory and prosperity a lost luxury. History will judge us by what we do—or fail to do—in this pivotal moment. Worst of all, any negotiated fixes will come too late. The medium-term damage from this trade war will linger, even if the tariffs last mere months. The harm is already done.

Gustavo de Aristegui is a seasoned Spanish diplomat and politician who served as Spain’s Ambassador to India.

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