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28.05.2025 12:45 AM
What Could Trump's Minimal Tariffs Lead To?
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Donald Trump has given countries he claims are "robbing the U.S." a three-month deadline to reach trade agreements. As of now, two months into this deadline, only one deal has been signed with the United Kingdom. Let's assume the softest scenario unfolds, and all 75 trade agreements are eventually signed. This would mean the average minimum import tariff into the U.S. would be around 10%. But how would such a 10% tariff affect the U.S. economy?

After a 0.3% economic contraction in the first quarter, some might think the situation isn't too bad. However, in reality, even Trump's minimal tariffs could have long-term consequences.

It's worth noting that the average U.S. import tariff rate over the past three decades was just under 3%. Imports account for 12.2% of the U.S. GDP, and now import tariffs could increase fivefold. It's not hard to roughly estimate how much imports would shrink due to this sharp rise in tariffs and how this would impact the economy.

A separate note should be made about tariffs on China, which currently stand at 30%—three times higher than the potential minimum tariffs for all other countries and ten times the average rate before the start of the trade war. Given China's role as a major supplier of cheap goods to the U.S. (and the world), it's also not difficult to calculate how much imports from China will decline, how much prices will rise, and how trade flow structures will shift. Imports from China will be replaced by imports from other countries—which will be more expensive. This will lead to declining demand for various goods and rising inflation. That's why Jerome Powell's concerns about sharp price increases are justified, and he is reluctant to initiate another round of monetary easing.

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Therefore, judging the effects of Trump's tariffs based solely on the Q1 GDP report would be wrong. The second and third estimates may paint a much worse picture. If the tariffs are not rolled back through trade agreements, the damage to the U.S. economy will far exceed the 0.3% figure. Market participants, unlike the U.S. administration, understand this.

Wave Pattern for EUR/USD:

Based on my analysis, EUR/USD continues forming an upward wave segment. In the near term, the wave structure will depend entirely on the news backdrop surrounding Trump's decisions and U.S. foreign policy. The formation of wave 3 in the upward segment has begun, with targets possibly extending toward the 1.2500 area. Accordingly, I consider buying with targets above 1.1572, corresponding to the 423.6% Fibonacci level. Remember that the de-escalation of the trade war could reverse this upward trend, but currently, there are no signs of either a reversal or de-escalation.

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Wave Pattern for GBP/USD:

The wave structure of GBP/USD has evolved. It now represents an upward, impulsive segment. Unfortunately, under Donald Trump, the markets may face countless shocks and reversals that don't align with wave structures or any form of technical analysis. Nevertheless, things are currently unfolding according to the updated wave scenario. Wave 3 of the upward movement is in progress, with immediate targets at 1.3541 and 1.3714. Therefore, I continue to consider buying, as the market shows no inclination to reverse the trend again.

Key Principles of My Analysis:

  1. Wave structures should be simple and clear. Complex structures are difficult to trade and often evolve.
  2. If you're uncertain about the market, it's better to stay out.
  3. There is never 100% certainty in market direction. Don't forget to use protective Stop Loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
© 2007-2025
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