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The tariffs announced by United States President Donald Trump on April 2, 2025, on 60 countries excluding Canada and Mexico will shrink the country’s economy in both the short- and long-terms, according to an analysis by Yale University.
US real Gross Domestic Product (GDP) growth is -0.5pp lower in calendar year 2025 and -0.1pp lower in calendar year 2026, as per the analysis by The Budget Lab at Yale. It is a non-partisan policy research centre that provides in-depth analysis of federal policy proposals for the American economy.
After 2026, says the analysis, the level of GDP begins to recover modestly as production and supply chains reoptimise.
“But in the long-run, US output is still -0.4% lower from the April 2 announcement. That’s the equivalent of the US economy being permanently smaller by $100 billion annually in 2024 dollars. Real exports specifically are lower in the long-run by -10% under the April 2nd policy,” it adds.
This analysis presents the fiscal and economic effects of the April 2nd policy (without considering the other tariffs that have gone into effect so far this year or international retaliation).
It also analyses the impact due to all US tariffs that have gone into effect in 2025, including the April 2nd policy, as well as incorporating the effects of all international retaliation implemented as of publication.
Considering the latter, real GDP growth is -0.9pp lower in calendar year 2025 and -0.1pp lower in calendar year 2026, while the level of real GDP is persistently -0.6% smaller in the long run, the equivalent of $160 billion 2024$ annually, while exports are -18.1% lower.
According to the analysis, the April 2nd announcement only modestly affects the world economy on net outside the US, when considered in isolation.
This is mainly because Canada and Mexico were absent from the April 2 announcement. When analysed by itself, both countries gain materially from the policy in the long-run.
“China’s economy contracts slightly by 0.2% in the long run, while the UK sees a small 0.1% advantage,” notes the analysis.
However, on the second count of all 2025 tariffs, it adds that “the story is obviously quite different from the April 2nd announcement in isolation. Canada has borne the brunt of the damage so far, with its long-run economy 2.1% smaller in real terms (reflecting both US tariffs and Canadian retaliation to date), but Mexico’s economy is if anything slightly larger in the long-run. China’s economy is 0.2% smaller while the UK’s is 0.2% bigger and the EU is 0.1% larger”.
As far as sectors go, clothing and textiles are the most affected on both parameters. Apparel prices rise eight per cent from the April 2nd action alone and 17 per cent from all US tariffs.
“Food prices are also disproportionately affected, rising 1.6% from the April 2nd policy (roughly equivalent to the last year’s worth of grocery inflation in CPI) and 2.8% from all 2025 tariff actions. Fresh produce rises 2.2% and 4.0%, respectively,” notes the document.
It notes that motor vehicle prices are largely untouched by the April 2nd announcement but rise by 8.4 per cent under all tariff action to date, the equivalent of an additional $4,000 to the price of an average 2024 new car.