US trade policy is again moving towards higher tariffs, but the eventual destination remains highly uncertain. For investors, policymakers and multinational firms, what matters is not just today’s measures, but where tariff rates could end up – and how different paths might reshape global growth, inflation and trade flows. In this research note, we set out four illustrative scenarios for the future of US tariffs and quantify their potential impact on GDP in key economies.
We begin by examining the “mechanical” effect of higher US tariffs: how far increased trade barriers, taken in isolation, would weigh on global activity through weaker trade volumes and higher import prices. Our modelling suggests that, on their own, plausible tariff increases are unlikely to be large enough to trigger a full‑blown global recession. However, that aggregate result hides substantial variation beneath the surface. Export‑oriented economies with strong trade links to the US – particularly key Asian manufacturing hubs and several countries in the Americas – could face a much larger hit to growth.
A second dimension is behavioural: how easily can US consumers and firms substitute away from imported goods towards domestic alternatives, and how quickly can global supply chains adjust? If the elasticity of substitution between foreign and domestic products turns out to be higher than assumed in our baseline, the growth damage from tariffs could be significantly greater, pushing the world much closer to, or even into, recession territory.
Finally, the note explores how differences in tariff rates across trading partners could redirect global value chains. In a high‑tariff world, there is a clear risk that production and exports shift towards countries facing lower US tariffs – a dynamic often described as friendshoring. Our US tariff scenarios suggest that, while friendshoring is not inevitable, it cannot be ruled out, particularly in sectors where supply chains are already under political and commercial pressure to diversify away from existing suppliers.
By combining scenario analysis with a careful treatment of trade elasticities and country‑level exposures, we provide a structured framework for understanding how rising US tariffs could reshape the global economy, who is most at risk and where new opportunities might emerge.
