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Tariffs explained: Assessing the global economic impact
Natalya Zeman
Investment Director
Jayme Colosimo
Investment Director
Harry Phinney
Fixed Income Investment Director
April 3, 2025

The much-anticipated “Liberation Day” on April 2 has provided investors with more details on the direction of U.S. trade policy under the Trump administration. Despite hopes of a more moderate approach, the tariffs were worse than expected, raising the prospect of lower economic growth, higher inflation and interest rate cuts. U.S. equity markets sold off sharply on the news, exacerbating a year-to-date decline for the S&P 500 Index. European and Asian markets also fell.


A lasting scenario with tariffs on the high end of initial rates could tip the U.S. toward a recession. Retaliatory tariffs and counter retaliatory tariffs from the U.S. remain a concern.


For a comprehensive regional and sector breakdown, along with broader implications, download our latest report.


A key caveat is whether tariffs are being used as a bargaining tactic. We suspect that the newly announced numbers are the opening salvo of negotiations and are not likely to serve as a roadmap for what tariffs could be in six to 12 months.  Still, current rhetoric and near-term economic implications make us cautious. It is still too early to draw definitive conclusions about the impact on economic growth and inflation, given the broad spectrum of sectors and countries affected by the new policies.  


Altogether, we expect an ongoing process, with recalibrations to many of the enacted tariffs. Initially, we may see higher tariffs in the near term, though lower in the long run, depending on the industry or national domicile. Fortunately for corporate firms, many have a healthy financial position, with historically high margins. Some companies will experience a rise in input costs, though the severity of such increases remain in flux. 


Under a scenario where tariffs are lasting and severe, such input costs could rise to a level that causes firms to cut capital expenditure, reduce head count or even cause a recession. Lastly, if the proposed tariffs persist, we could see a downgrade of earnings estimates now that the initial rates are more punitive than expected.


For more context, see our guides to tariffs and market recoveries: 


Natalya Zeman is an equity investment director with 10 years of investment industry experience (as of 12/31/2025). She holds a bachelor's degree from the University of Oxford.

Jayme E. Colosimo is an investment director for Capital Strategy Research at Capital Group. She has 25 years of experience and has been with Capital Group for two years (as of 12/31/2025). She holds both an MBA and a bachelor's degree in international business from Westminster College.

Harry Phinney is a fixed income investment director with 20 years of industry experience (as of 12/31/2025). He holds an MBA in international business from Northeastern University, a master's degree in applied statistics and financial mathematics from Columbia University and a bachelor's degree in international political economy, graduating magna cum laude, from Northeastern University.

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