Tariffs and trade wars: Unpacking US economic strategies and their impact

US President Donald Trump imposed broad tariffs on goods imported from various countries, calling the day “Liberation Day.”

The tariffs ranged from 10 to 25 percent, with a notable exception of a 145 percent tariff on Chinese imports, implemented after China failed to remove its retaliatory tariffs on US goods by the specified deadline.

Trump’s actions triggered global economic upheaval, escalating trade disputes between the US and numerous nations, many of which responded with retaliatory measures.

The initiative aimed to create a fairer global trade environment for the US, in line with Trump’s campaign promise to restore the nation’s greatness under the slogan “Make America Great Again.”

It also sought to encourage Americans to buy locally produced goods, revive domestic industries and foster job growth while supporting the $36 billion fiscal budget.

The US has faced significant trade imbalances with several countries, which have impacted economic growth, generated persistent trade deficits and put pressure on creating new job opportunities for Americans.

The US trade deficit has been a notable issue, reaching about $98.4 billion in December 2024 alone. For the entire year, the deficit rose by 17 percent compared to 2023.

Bilateral trade between the US and Canada has favored the latter, resulting in a US trade deficit of $64.26 billion in 2023.

I believe the adverse effects of the US’ decision to raise tariffs on the global economy and markets will gradually diminish.

In 2024, the US had a trade deficit of about $157.2 billion with Mexico, driven by imports totaling $466.6 billion compared to exports of $309.4 billion.

China remains the largest trade partner, with the US importing $438.9 billion worth of goods from China while exporting only $143.5 billion in 2024, reflecting China’s dominance in manufacturing and consumer goods.

Trump’s tariffs have significantly impacted the global economy and international stock markets, including US markets.

The Dow Jones Industrial Average experienced massive losses at the outset of the tariff hike, dropping by 4,500 points and marking its largest one-day decline since June 2020. The S&P 500 tumbled by 274 points, its worst day since June 2020. The Nasdaq Composite suffered a steep decline of 1,050.44 points, its biggest single-day loss since March 2020.

I believe Trump’s decision to raise tariffs could be a double-edged sword.

While the tariff increases present an opportunity to implement the president’s vision for economic and trade reforms, potentially strengthening the US economy, they have also sparked intense trade conflicts that are casting a shadow over global economic growth and stability.

Economic experts warn that if these global trade wars persist and intensify, they could push the global economy toward stagflation, with inflation rising by an estimated 0.5 to 2 percent.

The World Trade Organization projected that, due to the tariff war, global gross domestic product could decline by 7 percent this year, and trade between the US and China could drop by as much as 80 percent.

As a result, the increase in trade tariffs is unlikely to have a significant impact on Saudi Arabia’s economy and trade, thanks to the strategic and enduring economic partnership between the Kingdom and the US.

While the tariffs have contributed to a decline in global oil prices, Saudi Arabia’s finances are expected to be only marginally affected, due to the Kingdom’s budget being based on conservative projections and prudent fiscal planning.

In conclusion, I believe the adverse effects of the US’ decision to raise tariffs on the global economy and markets will gradually diminish.

This scenario seems especially likely, as more than 70 countries have shown readiness to negotiate with the US and present solutions. Meanwhile, Trump has chosen to suspend the newly imposed tariffs above baseline levels for a period of 90 days.

It is essential for the World Trade Organization to take swift action by convening a meeting at the level of world leaders, similar to the one held in Washington in 2008 during the global financial crisis, to address this issue.

Such a meeting would help develop effective resolutions and strategies to end the tariff conflict and safeguard the stability of the global economy.

• Talat Zaki Hafiz is an economist and financial analyst. X: @TalatHafiz