The world pays more for global trade than it did a year ago. Exchanges are more expensive. US President Donald Trump’s trade policy has revolutionized trade relations that countries have built for decades based on layers of diplomacy. The so-called “reciprocal” tariffs that Trump widely imposed on the famous April 2 of this year are in full evolution. The rudimentary poster showing the world the day the president christened “Liberation Day” became obsolete in a matter of months.
The White House is shaping trade policy with permanent changes that leave traders stunned. Exchange rates suffer from high volatility. Businesses and merchants must adapt to Trump’s every new move. And there are many steps in this frenetic dance that the New Yorker has undertaken. “The effective tariff rate has fluctuated substantially this year, starting at 2.4% in early January and peaking around 28% after the announcements on April 9 and 13,” says Yale University’s Budget Lab, which closely tracks import taxes.
That April 2, Trump imposed a minimum universal tariff of 10% on all imports and further punished his traditional trading partners. The EU, for example, imposed an additional tariff of 20%. Since then, the White House has modulated taxes based on agreements that included other considerations. Trade tensions over many food products have eased in the past two weeks.
Trump’s chaotic tariff policy is changing the balance of forces in global trade. Countries that were imposed lower rates became more competitive overnight. And those who bear higher taxes lose attractiveness. After the latest negotiations, the 15% tariff seems to be the reference for commercial partners.
This is precisely one of the points that the European Commission highlighted last week to improve the bloc’s economic forecasts. The Community Executive alludes to the “relative advantage for the European economy” compared to countries or blocs that suffer higher tariffs from the United States to explain the upward revision of its forecasts. Although it offers them a certain competitive advantage, the new trade policy still does not convince economists, businesses and families.
Sophie Altermatt, an economist at Julius Baer, gives the example of the recent US trade deal with Switzerland, which reduces tariffs from 39% to 15%. “Switzerland faces the same tariff rate as the EU, eliminating the competitive disadvantage in the US market.” He continues: “Although the agreement offers some relief to exporters, their situation remains complicated. Even with the agreement, the US tariff rate is significantly higher than before the inauguration of US President Trump,” notes Altermatt.
While 15% is a member benefit, it is a much higher level than earlier in the year. As a result of the recent changes, “citizens face an average effective fare rate of 14.4%, the highest since 1939,” as calculated by Yale’s analytics department.
This obviously has consequences: “American small businesses are experiencing significant cost increases over the past year,” according to the latest Company owner report from Bank of America, citing inflation and tariffs as the top concerns for small business owners.
A report from the Technology Association (CTA) indicates that nearly half of those who believe they will spend less during the upcoming Christmas holidays attribute their decision to economic concerns, largely due to rising prices caused by tariffs.
Economists remember that advertising is one thing and facts are another. US Trade Representative Jamieson Greer recently lamented the slow development of the EU-US trade agreement. He recalled that Europe has not yet reduced tariffs on American imports. He also noted that China has not yet finalized a deal on rare earths, although US Treasury Secretary Scott Bessent hopes for a deal before next Thursday, when American families will celebrate the Thanksgiving holiday. But the reality is that there are still details to be closed.
In any case, Trump’s tariff shift raises questions about whether he has used tariffs to gain some political advantage from his trading partners. As if he were using tariffs as a negotiating weapon to achieve other objectives. For example, it forced Europe to invest billions in the United States and increase defense spending to benefit American companies or Mexico to tighten control on the border.
Economists usually remember that everything in life has a cost. The increase in tariffs also has consequences: the shopping basket becomes more expensive for American families. “Growing political concern about consumers’ perceptions of inflation appears to be driving the reduction in tariffs that US importers pay on food products,” says Paul Donovan, chief economist at UBS. This economist refers to the growing concern about the rising cost of living.
The debate on affordability spread across the United States like wildfire following Zohran Mamdani’s victory in the New York mayoral elections. The socialist politician raised the banner of high prices as one of the main planks of his campaign. The White House has since tried to regain the initiative with measures aimed at reducing the cost of living. Among these, some tariff reductions.
For this reason, in the last two weeks, the Republican president has approved several substantial changes. Reached an agreement with Argentina, Ecuador, Guatemala and El Salvador to reduce trade rates on a wide range of products that are not made in the United States. The next day he approved an executive order to exempt from tariffs 200 staples in American families’ shopping carts, such as meat and beef products, bananas, pineapples and other tropical fruits, coffee and vegetables, among other products.
It also agreed with Switzerland to reduce trade taxes from 39% to 15%. Precisely this rate is what the main trading allies of the United States, such as the European Union or Japan, bear after last summer’s trade agreements. This seems to be the new goal.
Brazil’s tariff status changed this week, maintaining a general rate of 50%, but the president exempted a large catalog of food products from payment, from coffee to coconut to beef.
“Bilateral negotiations with Latin American countries will be limited in scope due to the rules of the Mercosur trade pact. In the past, other tariff reductions have not necessarily reduced consumer prices,” says Paul Donovan.
In fact, according to Yale University, tariffs are regressive taxes. In a study released this week, the analysis center concludes that a household in the lowest decile, in the lowest 10% of income, faces a real income loss of $920 in dollar terms, while the average household in the highest decile, in the 10% with the highest income, loses $3,871. This is a larger absolute amount, but proportionately represents a much smaller cut of income. That is, low-income families bear a tax burden due to tariffs of 2.4%, compared to 0.8% for the richest, three times more. The most vulnerable households spend a larger share of their income on goods exposed to tariffs, such as clothing, footwear or electronic devices and vehicles. Tariff rates on these products had not been seen since the start of World War II.
