Post date: Mon, Oct 13, 2025
Category: Economic literacy
By: Emmanuel Wa-Kyendo,

Chart 1: Average US Tariff Rate, 1927 – 2025

Source: Paul Krugman, Budget Lab at Yale

This chart from the USITC and the budget lab at Yale shows that the average U.S. tariff rate reached heights of 20% in the year 1933 and then gradually fell and continued to fall to below 4% by the year 2012. In the year 2025, U.S. tariffs have shot up to just above 22.5%. This is the highest it has been since the year 1909.

Without accounting for macroeconomic dynamics that include predictable and unpredictable responses to tarrifs, it is projected that U.S. tarrifs would raise revenues of US$2.743 trillion over a period of ten years between 2026 and 2023. This is equal to 0.7% of GDP.

By July 27, 2025, all U.S. Tariffs applied up to that date were estimated to cost the United States 0.7% of its GDP or US$ 2.743 trillion. The Personal Consumption Expenditures (PCE) is all the money spent by households and on their behalf – ie on employer paid healthcare – on goods and services. The PCE Price Index is published by the United States Bureau of Economic Analysis (BEA) and tracks the average change in prices of the items in PCE over time. The PCE is similar to the Consumer Price Index (CPI) but is broader and is weighted differently. The PCE price level is an index measuring the price level for consumer spending. When the PCE price level rises, the average prices of goods and services consumed by households has risen and is a reflection, therefore, of rising inflation. If the PCE price index rises by 2% per year, this is regarded as healthy. A high PCE would prompt the Fed to raise interests rates in a bid to cool the economy. U.S. Tariffs are estimated to cause 1.81% change in the PCE Price Level. If a 2% rise per year is considered healthy, a 1.81% change in the PCE attributed to tariffs alone is siginficant. This data demonstrates that tarrifs are inflationary.

It is estimated that U.S. Tariffs would cause a decline in average post-tax and transfer income per household of US$ -2,404. After substitution effects – that is after households begin to purchase alternatives to offset the rising cost of imports attributed to tariffs – the additional effective tariff rate would be 14.9%. This means that after accounting for dynamic responses, the tariffs act like raising the tariff burden by 15%. It is estimated, further, that at the 27.9% effective tariff rate, the tariffs will cause a drop in China’s share of U.S. imports from 14% before substitition effects to 8% after substitution effects. The rest of the worlds’ share of U.S. imports would itself fall from 58% before substitition to 57% after substitution effects.

In the short run, it is estimated in both the years 2025 and 2026, real U.S. GDP growth will slow by 0.5%, with unemployment rising by 0.29% and Q4 2025 payroll employment falling by 494,000. This last point means that the U.S. will create 494,000 fewer jobs in the year 2025 than it did in the year 2024.

In the medium to long run, that is between 2025 and 2035, the real U.S. GDP level will contract by -0.38%.  Additionally, because of U.S. tarrifs, the U.S. will make US$ 456 billion less in revenue collections. As for American households, the wealthiest 10% are estimated to lose US$4,934 or 1% of their after tax incomes while the poorest 10% of American households will lose US$ 1,279 or -3.4% of their after tax incomes.

Tarrifs are an unconventional instrument to use to raise government revenues, to say the least. The consumers opportunity to purchase from a competitive market and enjoy expanded welfare is curtailed. It can be argued, further, that tariffs rob consumers of their wealth and that they contravene the moral injunction to do good. The current U.S. administration has not explained to its voters in explicit, clear terms what role these tariffs are to play in the re-industrialization of the United States and in plugging deficits in arms manufacturing required to give the state the optionality that it claims domestic manufacturing will grant it in a protracted geo-strategic struggle against China, Russia or any other geopolitical opponent. The concern for the global public would be the implications on the provision of global goods. The United States is an important source of global goods both directly through its cash infusions into the United Nations and indirectly in activities that include and are not limited to patroling the oceans and responding to the houthi threat.

What Would the Tariffs Mean for Developing Economies?

Economist Cullen S. Hendrix of the Peterson Institute for International Economics asserts that along with draw downs of U.S. development assistance, the new U.S. tariffs run afoul of trade rules, are not reciprocal and will serve to erode U.S. standing in developing economies.

The reason that the new U.S. tariffs are not reciprocal tariffs is that they are not a tit for tat retaliatory measure. For example, Vietnams average most favoured nation assessed tariff rate was 9.4%. This means that on average, in cases where Vietnam did not have a special trade agreement with other countries, Vietnam charged WTO members a tariff of 9.4%. That is, 9.4% was the tariff rate that Vietnam actually applied under WTO Most Favoured Nation (MFN) rules.

The U.S. average MFN applied tariff was lower at around 3% to 4%. Although this was lower than vietnamns average MFN tariff, as long as each nationa applied its tariff schedule equally to all WTO members, there was no violation.

Under WTO rules, Vietnam applied its average MFN tariff of 9.4% to U.S. goods. The U.S. was obliged to treat Vietnam as it treated other WTO members under its own MFN tariff schedule. By applying a 46% tariff on vietnam without legal justification – ie of some trade rules violation on Vietnams part – the U.S. exceeded its own WTO bound rates

Poor countries have high tariffs for economic and administrative, and most critically, political reasons. Cullen S. Hendrix points out that it is easier for countries with low administrative capacity to collect as much revenue as they can at one collection point. That is, goods crossing the border are easier to target than informal workers who are too poor to tax in any case. PIIE asserts that U.S. tariffs fail to account for the reality of fiscal constraints that poor countries face.

Although Cullen S. Hendrix emphasises that poor countries use tariffs as an administrative go-around to augment tax revenue shortfalls, it is hardly a fully circumspect argument. The political economy of tariffs on the African continent, for example, is that tariffs are used as protectionist measures to augment patronage systems and favour a select few, well connected producers to the detriment of consumer welfare.

The White House asserts that the adverse effects of the 2nd April 2025 tariffs can be countered by efforts to stimulate domestic comparative advantages. In a world where Hawaii’s 3,500 acres of land are the only viable replacement to Cote D’Ivoires 11.8 million acres of cocoa beans production, this seems highly unviable. 76% of Côté d’Ivoire exports to the United States were made in cocoa.

The integrity of U.S. policy objectives that include the generation of government revenue, the restoring of U.S. industry and the rebalancing of bilateral trade ties can possibly be defended.

The manner in which these goals are being pursued, however, is destructive and un-strategic. US stock market performance reflects that U.S. firms are already expressing what foreign firms in the developed and the developing world know which is that trust is a critical component of policy making.

The U.S. Administration may be pursuing a course of action that does not encourage it’s partners to follow trade rules and erodes their confidence in the U.S. in that they will be hard-pressed to pursue policies that are of U.S. interest.

August 2025

On August 7th, 2025, the current U.S. administrations’  global tariffs went into effect. That  administration had promised that it would impose a global minimum duty of 10%. In addition to this minimum, the Trump administration also promised that it would impose different rates on select trade partners. For example, Indian goods were subjected to a a surprise 25% tarrif just before midnight on August 6th. This was designed as a punishment for India’s continued purchases of Russian energy. In response to the Russian invasion of Ukraine, the United States imposed sanctions on Russia energy.

Switzerland received a steep 39% tarrif on its own trade with the United States. Last minute attempts by Swiss president Karin Kellee-Sutter to secure better terms were naught.

Authorities used to impose these tarrifs are multiple and include Section 201 safeguards, Section 232 of the Trade Expansion Act of 1962, Section 301 of the Trade Act of 1974, “Liberation Day” Tarrifs not based on Section 232 or section 301 but that were based on executive proclamation(Executive Order 14258). Other tools used included the Safeguard measures (Section 201) and renegotiated tariffs under USMCA, the replacement to NAFTA.

The effects of U.S. tarrifs on United States can be assessed in terms of the value of affected trade, the change in the average U.S. effective tariff rate, change in U.S. GDP, and change in U.S. inflation.

The reciprocal baseline rate of 10% has targeted  U.S$987.7 billion of American trade flows. This means that retaliation by the world against the United States was aimed at almost US$ 1 trillion of American trade. For context, Kenya’s GDP in the year 2024 was US$ 124.5 billion. In that same year 2024, World Bank estimates were that the United States exported US$ 3.18 trillion and imported US$ 4.08 trillion worth of goods. This means that a quantum equal to more than a third of American exports or a quarter of its imports has been targeted in retaliation for the U.S. administrations own tarrifs. Because tariffs are imposed on goods coming into a country and therefore constitute a tax on imports, this US$987.7 billion reported by bloomberg likely refers to the value of American exports to the world that have received just about 10% tariffs in retaliation for U.S. administrations own tariffs.

Retaliatory measures were aimed at American exports valued at  US$ 444.9 billion, US$ 58.9 billion, US$ 18 billion and US$ 13.2 billion, in exports made to China, the United States, Mexico, Canada Agreement – a trading bloc,Brazil and Canada each. That is, these are the values of American trade left exposed to retaliatory tariffs.

The retaliatory measures imposed against the U.S. by the world have raised the average effective tariff rate that the U.S. is receiving from the world by 4.3%. The effect of Chinese retaliatory measures has been to raise the average effective rate that the U.S. is receiving from China by an additional 3.57%. On average, retaliatory measures imposed by the world have cost the U.S. -0.62% in GDP growth and have raised U.S. inflation by 0.37%. These are the effects of every singe tariff imposed by the current administration

Conclusions and Recommendations

The World Bank estimated that in the year 2025, Sub Saharan Africa’s GDP was US$ 1.96 trillion while US$ expors were valued at 3.18 trillion. The United States is a large economy whose annual exports and imports exceed Sub Saharan Africa’s total GDP in value. This wealthy nation can certainly take a hit. On both a per capita and a national basis, the United States can absorb its own tariffs like no other nation can. In a tariff war, the United States has escalation dominance against all other nations of the world, atleast on a bilateral basis. This means that the United States can use tariffs to obtain the policy consessions of its choice. That being said, the current administration, like any administration on earth, will find itself the subject of consternation American households and firms whose market choice, dispable incomes and factor returns are sure to take a hit. The tariffs are not costfree. Trade offs and opportunity costs will be incured by the administration, by households and by firms. The United States is also limited by comparative advantages that make it so that it it cannot replace all its imports through domestic production. Furthermore, the market discovery process through which new comparative advantages are discovered and old ones shed dynamically will be negatively disrupted. Despite well intentioned aims, the comparative advantage is not discovered by government edict. The market will lose efficiency. Implicitly, the voteres selected that administration and will channel their consent or frustrations through the myriad of engagement opportunities and media. Civil society and public interest actors of all kinds are and will continue to chime in with their perspectives. That being said, the abruptness, magnitude and winding complexity of the tariff regime imposed by the current U.S. administration presents the world with a less stable, less free-trade enthusiastic America and bodes ill for a world that was moving away from tariffs and towards freer movement of goods and services.

Small open economies, their households, firms and governments should be wary of responding to these tariffs with aggressive tariff regimes of their own. Small, open economies benfefit from free trade. This is because the poorest citizens have been rendered wealthier by efficiencies accrued elsewhere. That is, despite their own poverty and perennial stagnation, and policy failures, consumers in poorer countries are benefitting from the goods that foreign firms produce, and, conversely, from progressive economic policies elsewhere around the world. It should be clear that tariff wars, and an overall disruption to globalization would, on the whole, rob small open economies of opportunities to improve household and firm welfare.  Furthermore, small open economies are at risk of watching hard earned gains be reversed. Building the world anew will be especially costly. The poorest nations of the world should support free trade.

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