Key Developments: U.S. tariffs briefly exceed 100% on China, EU faces 20% levies, $36 trillion debt amplifies credit risks.
Policy Uncertainty Stifles Activity
2025 U.S. trade measures inject severe uncertainty:
- Volatile Tariffs: Trump-era 10-54% duties on major partners – partially paused until July – contributed to Q1’s 0.2% GDP contraction via import surges.
- Eroded Confidence: U.S. policy uncertainty indices hit crisis-era highs, chilling business investment and global sentiment indicators.
- Sovereign Risk: All three major raters stripped America’s AAA credit grade, exposing fiscal fragility at 127% debt-to-GDP ($36 trillion).
Supply Chains Forced to Adapt
Tariffs accelerate regional supply chain fragmentation:
- Trade Bloc Formation: U.S.-China trade could shrink 30-40% as RCEP’s intra-Asian intermediate goods share hits 66%.
- Industry Strains: Metals, autos, and chemicals suffer most; U.S. retail/ICT sectors face downgrades while China’s textiles lose orders.
- Data Distortions: Irish pharma stockpiling and Chinese front-loaded exports skewed Q1 trade figures.
Emerging Economies Bear Disproportionate Pain
- Mexico’s 2025 growth nears zero; Brazil slides into contraction amid tight money.
- India’s 7% expansion masks weakening consumption and fiscal constraints.
S&P warns failure to extend July’s tariff pause could push global growth below 2%.