Trump Tariffs Investor Guide: Get Ready for Risks and Opportunities in 2025

On April 2, 2025, the Trump administration announced the implementation of unprecedented import tariffs affecting nearly all US trading partners. The size of these so-called "reciprocal" tariffs for each country is calculated based on their trade deficit with the US and ranges from 10% to 50%. The average effective tariff rate has reached 22% — the highest since 1910.

Penn Wharton Budget Model (PWBM) forecasts that Trump's tariffs will reduce GDP by approximately 8% and wages by 7%. A household with an average income will face total losses of $58,000. These losses are twice as high as the equivalent revenue-generating corporate tax increase from 21% to 36%, which is considered a highly distortionary economic tax.

This radical tariff policy breaks a seventy-year trend toward trade liberalization and has already caused a stock market crash. There are troubling parallels with the Smoot-Hawley tariffs of 1930, which many economists believe exacerbated the Great Depression. Meanwhile, the mechanism for calculating Trump's trade tariffs raises questions — there are signs it was generated by artificial intelligence without consideration for economic realities.

Although on April 9 Trump announced a 90-day pause before implementing tariffs for all countries except China, whose tariffs he raised to 145%, it is clear that the tariff war is here to stay for the long term. At the time of writing, the final rates for each country are unknown, as the situation changes at the whim of one person, but we can already assess this new reality. That's what we'll address in this article.

What Are Tariffs and How Do They Work?

Tariffs are taxes that a government imposes on imported goods. When a company imports goods from abroad, it must pay a certain percentage of their value to the treasury of the importing country. For example, with a 20% tariff on TVs, a company importing a TV worth $1000 will pay the government $200 in customs duties.

Tariffs serve three functions:

• They supplement the state budget
• They protect local producers from foreign competition
• They serve as an instrument of international policy

When a country raises tariffs, imported goods become more expensive, potentially shifting consumers to local products. At the same time, this creates inflationary pressure, as higher prices for imports often lead to a general increase in consumer prices.

Historical Tariff Trend 

• Historically, import tariffs in the 19th century in the United States and other countries could exceed 50%, as they constituted the primary source of federal budget revenue.
• Since the early 20th century, there has been a gradual reduction in tariffs in the United States and worldwide, a trend that accelerated following the Second World War.
• The last significant U.S. tariff initiative was the Smoot-Hawley Act of 1930, which raised tariffs on more than 20,000 imported goods to unprecedented levels and is considered one of the factors that exacerbated the Great Depression.
• From the late 1990s onward, there has been an increase in non-tariff protectionist measures across global markets.
• The current Trump tariffs have elevated the effective tariff rate to approximately 22% — the highest since 1910.

Trump's Tariff Strategy

The tariff policy of the Trump administration pursues four main objectives:

• Replenishing the federal budget and reducing the US national debt, which has exceeded $36 trillion
• Restoring the industrial capacity of the United States
• Creating a negotiating position for concluding more favorable bilateral trade agreements
• Reducing the US trade deficit, which has remained consistently high for several decades

Donald Trump's tariffs are called "reciprocal" and are calculated based on the US trade deficit with each country. The larger the imbalance in trade, the higher the tariff.

Key features:

• Only trade in goods is considered, while trade in services (where the US has a surplus) is ignored.
• Specific categories of goods are excluded, for example, semiconductors and high-tech components critical to American production chains.
• Rates vary from 10% to 50%, affecting major trading partners: China (initially 34%), Taiwan (32%), South Korea, Japan, and most European Union countries. There are also unusual cases, such as Lesotho with a 50% tariff mainly due to diamond exports, or Indonesia with a 37% tariff due to predominantly raw material exports.
• Canada and Mexico (partners in the USMCA trade agreement) and Russia (already under sanctions) are exempt from the new tariffs.

Example: If a country exports $257 million in goods to the US, but imports only $7 million in American goods, this creates a deficit of $250 million. The ratio of this deficit to the country's total exports (250/257, ≈ 97%) is used to determine the tariff, in this case, approximately 50%.

Problems and Contradictions of Trump's Tariff Policy

First, it's worth noting that the Trump administration has encountered a classic economic contradiction known as the Triffin dilemma:

• On one hand, the US is interested in maintaining the dollar as the world's reserve currency and its status as a provider of "safe assets."
• On the other hand, Trump aims to increase the competitiveness of American exports.

The problem is that these goals are mutually exclusive:

• Reserve currency status inevitably leads to a strengthening dollar.
• A strong dollar makes American exports more expensive and less competitive.

Meanwhile, Trump simultaneously threatens BRICS countries with sanctions for attempting to create alternatives to the dollar while complaining that the dollar is too strong, which represents a direct logical contradiction.

Methodological Flaws in Tariff Calculations

• Ignoring trade in services. The deficit calculation only considers trade in goods, although the US has a significant surplus in services trade. This creates a distorted picture of the trade balance and unjustifiably inflates tariffs.
• Lack of economic analysis. Tariffs are calculated automatically using a formula that doesn't account for the specifics of financial relationships with particular countries, historically established trade ties, or strategic interests.
• Absence of sectoral differentiation. The same tariffs apply to all goods from a country, regardless of their strategic importance to the American economy or the degree of dependence on these supplies.

Signs of Incompetence and AI in Tariff Policy Development

• Structural anomalies in the country list — the order of countries follows neither alphabetical, trade volume, nor geographical principles, characteristic of unedited AI outputs.
• Similarity to template responses from neural networks when testing similar queries in ChatGPT and similar systems.
• Incorrect application of economic models, including misapplication of the φ (phi) coefficient used to assess the pass-through of tariffs to domestic prices.
• Pseudoscientific justification using scientific-looking formulas with Greek letters that are economically meaningless but appear convincing to non-professionals.
• References to non-existent research, broken links, and incorrect interpretation of existing scientific work.

The Gap Between Political Rhetoric and Economic Reality

• Contradictory statements regarding trade and tariffs often change day to day.
• Fluctuating position toward trading partners, changes depending on the latest news or personal meetings.
• Problems understanding basic principles of international trade are manifested in public statements.
• Abuse of emergency powers — using the 1977 International Emergency Economic Powers Act that allows the president to impose tariffs in "emergency circumstances" to address a chronic trade deficit problem that has existed for decades.

Historical Lessons of Tariffs

History has seen numerous examples of large-scale changes in tariff policy, and these cases provide valuable lessons about the potential consequences of Trump's current tariffs.

Smoot-Hawley Tariffs and the Great Depression

The most alarming historical parallel for the US itself is the Smoot-Hawley Act of 1930, which sharply raised import tariffs in the US at the beginning of the Great Depression. Economist Thomas Sowell offers this assessment:

"The Smoot-Hawley tariffs were more significant for the Great Depression than the stock market crash 1929. Unemployment never reached double-digit levels in any of the 12 months following the stock market crash in October 1929. Still, within 6 months after introducing the Smoot-Hawley tariffs, it reached double digits and remained at that level for a decade. When you start a trade war, like any other war, you don't know where you'll end up."

The consequences were catastrophic:

• Trading partners imposed retaliatory tariffs
• World trade decreased by 66% within a few years
• The economic crisis deepened and spread throughout the world

Plaza Accord (1985): Using Currency Intervention Instead of Tariffs

In 1985, the US faced trade deficits similar to today. Rather than imposing tariffs, the US worked with the UK, France, Germany, and Japan (the "Group of Five") to sign the so-called Plaza Accord. This agreement orchestrated a controlled dollar devaluation through coordinated central bank intervention.

Results:

• America's trade balance improved significantly
• The dollar plummeted by 51% against the yen and 40% against the German mark within two years
• Japan suffered severe consequences as its strengthened currency created an enormous asset bubble that eventually burst
• This triggered Japan's infamous "lost decade" of economic stagnation

Trump may be aiming for a similar deal, which has many US trading partners concerned about potentially suffering Japan's fate.

Trade War with China (2018-2020): A Trial Run with Limited Success

Trump's first term already featured a tariff experiment, with China as the primary target. 

• Initially, the tariffs did succeed in narrowing the trade deficit with China.
• This victory proved short-lived as dollar appreciation effectively canceled much of the tariff impact.
• Supply chains quickly adapted, rerouting Chinese exports through Vietnam, Malaysia, and Taiwan.
• American consumers and companies, not Chinese exporters, shouldered most of the tariff burden through higher prices.
• Structural problems with the trade balance remained unresolved.

Can High Tariffs Lead to Wealth and Prosperity?

Donald Trump promises that his tariff policy will lead to a new golden age for the United States, and Americans will "get tired of winning." But is it fundamentally possible to achieve wealth and prosperity using high tariffs as the main instrument of economic policy? Economic science provides a much more complex answer to this question than the administration's rhetoric suggests. 

Free Trade Leads to Prosperity

• Adam Smith's The Wealth of Nations asserts that the foundation of wealth lies in the division of labor and specialization. Like individual workers, countries thrive when they focus on what they do best. But this specialization requires the free exchange of goods.
• Ricardo's model of comparative advantage demonstrates that even a country lagging in productivity across all sectors can benefit from international trade thanks to the principle of comparative advantage. Trade creates a situation where all participants win, not a zero-sum game.

Empirical Evidence Does Not Confirm That High Tariffs Lead to Prosperity

• Periods of active economic growth in the world economy typically follow periods of trade liberalization.
• Countries that chose import substitution strategies (Latin America in the mid-20th century) generally lagged behind export-oriented countries (East Asia).
• Even successful examples of tariff use (the US in the 19th century, and China in recent decades) combined protectionism with active industrial policy and significant investments in infrastructure and human capital.

When Can Protectionism Be Justified?

• Protection of infant industries. Temporary protection can allow emerging industries to grow to a level where they can compete in the global market. However, historical experience shows that such protection often drags on and leads to permanent inefficiencies.
• National security considerations. Dependence on imports in areas critical to security (steel, aluminum, semiconductors, pharmaceuticals) can create strategic vulnerabilities. However, industries with no direct relation to security often try to use this argument.
• Optimal tariff. Large economies, such as the US, can influence world prices and theoretically benefit from certain levels of tariffs. However, this only works without retaliatory measures from trading partners.
• Response to unfair trade practices. Trade barriers can be justified as a response to other countries' subsidies, dumping, or other competition-distorting actions.

Balance Between Openness and Protection 

The modern consensus among economists is that neither absolute free trade nor radical protectionism is optimal. A more substantiated approach appears to be a balanced one that:

• Recognizes the advantages of international specialization and trade
• Takes into account the social and adjustment costs associated with trade shocks
• Applies selective protection in strategically essential sectors
• Complements trade policy with active support for education, research, and infrastructure

However, with its comprehensive nature and poorly conceived methodology, Trump's tariff policy does not align with this and is more likely to repeat historical mistakes than to usher in a "golden age" for the American economy.

Consequences of Trump's Tariff Policy

Predicting the exact consequences of Trump's new tariff policy is extremely difficult, as it remains unclear how much the president is bluffing, using his "Art of the Deal" to obtain better trade terms, and how much he is genuinely prepared to implement the announced measures fully. Nevertheless, we can analyze the likely consequences across different time horizons.

Short-term Effects (6-12 months)

• Inflationary pressure. Economic research shows that a 10% increase in tariffs leads to a 0.44% price increase for end consumers within a year.
• Distortion of consumer choice. Americans will face a reduction in available consumer options and will be forced to switch to less preferable (and potentially lower quality) alternatives. This represents a significant, but difficult to measure, decrease in welfare.
• Retaliatory measures from trading partners. The EU, China, and other major economies have already announced the preparation of symmetrical responses to American tariffs. This will create additional problems for American exporters, who will lose competitiveness in foreign markets and be forced to seek new sales channels.

Medium-term Effects (1-3 years)

• Restructuring of global supply chains. Businesses will adapt to the new reality by creating more complex and often less efficient supply chains. "Connector countries" will emerge, serving as intermediaries that mask the origin of goods. The overall efficiency of world trade will decrease, leading to increased costs.
• Changes in investment flows. In the US, investments in tariff-protected sectors will increase, creating an illusion of success for protectionist policies. Simultaneously, foreign direct investment in export-oriented US industries will decrease, and global investment flows will be redirected to countries unaffected by tariffs or privileged access to the American market.

Long-term Effects (3+ years)

• Decreased productivity. Historical experience shows that protectionism usually leads to a reduction in total factor productivity (TFP). Industries sheltered from international competition lose incentives for innovation and efficiency improvements. The economy as a whole is deprived of the benefits of international specialization and division of labor.
• Geoeconomic shifts. Trump's tariffs may accelerate the formation of regional trade blocs, the creation of alternative economic centers of gravity to the US, and, in the long term, the weakening of the dollar's global role.
• Structural changes in the US economy. Some industrial sectors may partially recover thanks to tariff protection. However, export industries and productions dependent on imported components will simultaneously suffer. The overall effect on employment and economic growth will likely be adverse.

The negative consequences may be limited if most tariffs aren't implemented or are quickly reduced after obtaining concessions from trading partners. However, even in this case, the uncertainty and unpredictability of American trade policy have already become significant factors, which businesses will consider when making investment decisions, potentially reducing the long-term attractiveness of the United States as a location for conducting international business.

What an Investor Might Do?

Trump's tariff policy creates a new economic reality with winners and losers. For investors, this is a time of both risks and opportunities.

Who to Bet On: Potential Tariff Beneficiaries

1. American manufacturers competing with imports

• Steel and aluminum companies (US Steel, Nucor, Alcoa)
• Consumer goods manufacturers with localized production in the USA
• Companies working in industrial equipment for the domestic market

2. Companies with minimal dependence on global supply chains

• Businesses with high vertical integration within the US
• Enterprises predominantly using local raw materials and components

3. Companies engaged in development and extraction of raw materials in the US

• Mining companies, especially those developing strategic metals
• Energy companies focused on the domestic market

Who to Avoid: Likely Losers

1. Export-oriented industries vulnerable to retaliatory tariffs

• Agricultural exporters (especially soybeans, corn, and pork)
• Boeing and its suppliers (the aerospace industry is susceptible to trade wars)
• Medical equipment manufacturers with a large share of exports

2. Companies with global supply chains

• Technology giants (Apple, Dell, HP) are dependent on Asian components
• Automakers use components from many countries
• Retailers selling predominantly imported goods (Walmart, Target)

3. International companies with considerable exposure to the American market

• European and Asian automakers
• Electronics and appliance manufacturers
• Luxury goods sector companies

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