How Trumps renewed tariff chaos will stifle investment around the world

After the US Supreme Court ruled against President Trump’s import tariff measures, his first reaction (after harshly criticising the judges who ruled that he had exceeded his authority) was to announce another 10% global tariff. Shortly after, he threatened that the new US tariff would be 15% instead of 10%. Officially, the only signed executive order says that President Trump imposes, “for a period of 150 days, a 10% ad valorem import duty on articles imported into the United States”. Given the volatility of the Trump’s Administration’s trade policy, it is all but impossible to predict, at least with any accuracy, what US tariffs will be when this period elapses. However, what we do know is that the chaos and uncertainty surrounding them will make investors and businesses extremely cautious. The resulting slowdown in trade will have an undeniably negative economic impact that will be felt by everyone. Read more: Trump hikes global tariffs to 15% as the fallout from Supreme Court loss continues A nonexistent economic emergency On April 2, 2025, which Trump dubbed “Liberation Day”, the president declared that the US was in an economic emergency that gave him a mandate to set tariffs at will. The April 2025 tarrif announcement made headlines around the world. Steve Travelguide/Shutterstock To make this happen, Trump invoked the International Emergency Economic Powers Act of 1977 (IEEPA), which granted him the authority to use tariffs to address a national emergency. However, most independent observers were sceptical as to whether the US was really under a national emergency, and even if it were, the tariffs were seen as a poor policy instrument to fight it. The main justification given for these ad-hoc tariffs was the US’ large current account deficit – put simply, the US typically imports more than it exports. But as I myself argued in February 2025, tariffs are the wrong tool for decreasing an aggregate current account deficit. A more effective policy would be reducing the government deficit by, for example, raising taxes. Read more: The Supreme Court’s ruling leaves Trumponomics facing major challenges New legal avenues The Liberation Day tariffs were not in place very long. Those applied to European Union (EU) goods were particularly chaotic. On April 2 2025, tariffs on EU imports were set at 20%. After a negative market response, Trump quickly issued a 90-day pause on April 9. On July 12, he announced a 30% tariff to take effect on August. Finally, on July 27, the EU reached a trade agreement with Trump that brought some tariffs down to zero and established an overall ceiling of 15%. Everyone assumed that this would be the end of the tariff escalation and that it would bring stability to US trade policy. However, the EU-US trade deal – which was due to be ratified in the European Parliament on Monday February 23 of this year – has been frozen after Trump’s response to the US court ruling. As things currently stand, the tariff applied to EU goods is 10% (for all goods, excluding some listed in the US executive order). However, Trump has imposed the new tariffs through section 122 of the Trade Act of 1974. This section can only be used to impose temporary trade restrictions, hence the announced 150 day limit. What will happen after these 150 days? Will the EU reciprocate with tariffs on US goods? Will a US-EU tariff war begin? The sad truth is that no one can safely predict what US tariffs will be at the end of the summer. The cost of uncertainty Imagine you are an EU producer deciding whether to start (or continue) exporting to the US. Even under normal circumstances, exporting your goods would entail various costs – hiring a lawyer to make sure your product satisfies US rules and standards, hiring a translator to adapt the label, and so on. To decide whether this investment will pay off, you need to be able to accurately forecast how much revenue you will obtain. But as tariffs increase, US businesses and consumers will pay more for your product. For a good priced at $10, an ad valorem tariff increase from zero to 10% means that the US price goes from $10 to $11. Higher US prices means you will sell fewer units in the US. Importantly, the increased revenue goes straight to the US government. Even though consumers are paying $11, you still only get $10 for each unit sold. After some calculations, you may conclude that exporting to the US is still profitable if tariffs remain below, for instance, 15%. Ordinarily, you would be able to predict which tariff will be applied to your goods when they reach US shores, but as we have witnessed the past year, we are far from an ordinary, predictable world. In the time it takes to approve, source, manufacture, package and ship your product, tariffs could have changed drastically. Businesses therefore no longer know whether the tariff applied to their goods will be 0, 10, 15 or 20% by the time they reach the US. This will lead many to modify, delay or even abandon investment opportunities. Global uncertainty A large body of research has proven that economic policy uncertainty reduces investment, consumption, growth, GDP and tax revenues. What we are faced with today is similar to other moments of global instability – pandemics, financial or political crises, wars, and so on. Uncertainty is inherent to any business venture, but the main effect of widespread doubt is to stymie investment across the board. And without investment, we cannot create and adopt new technologies or ideas which are the fundamental source of stable, long-term economic growth. A weekly e-mail in English featuring expertise from scholars and researchers. It provides an introduction to the diversity of research coming out of the continent and considers some of the key issues facing European countries. Get the newsletter!