Commentary: Tariffs change trade winds

Ray Perryman

We’re beginning to see the fallout from the increase in tariffs across the spectrum. Although there was a recent bump in imports as firms rushed to fill warehouses in advance of the levies, projections are indicating that trade volumes will fall this year. Lower trade is, in turn, contributing to projections for slower economic growth and higher prices than would occur otherwise. The decline in U.S. gross domestic product in the first quarter is a stark reminder of the consequences of trade disruptions.

The World Trade Organization recently updated its global trade forecast. The new outlook indicates that rather than expanding by about 3% in 2025 as thought until recently, global trade is now likely to drop. The big loser is North America, which is expected to be down by 1.7 percentage points.

Even with this sharply less favorable forecast, the WTO highlights notable risks that could make things worse. If tariffs persist and even ratchet up as countries reciprocate, trade could further deteriorate. Uncertainty related to trade policy is an additional concern. In fact, recent dramatic drops in cargo at U.S. ports suggest that unless progress is made in ending the impasse, we are rapidly approaching empty shelves and critical shortages.

Trade is an essential element of economic growth. Virtually all major empires of history were anchored by trade, and we figured out the math more than 200 years ago. Exports support production processes, and access to global markets greatly enhances expansion prospects.

Trillions of dollars per year in U.S. exports benefit companies across the nation, and the dampening effect of tariffs will adversely affect domestic manufacturing. Imports of finished goods support a variety of industries ranging from logistics to retail (not to mention improving consumer choice and pricing). Moreover, they also provide key inputs to U.S. producers, and the effects will work their way through the supply chain. When we all specialize and trade, everybody wins.

It’s no surprise that the International Monetary Fund’s most recent world economic outlook also calls for slowing. Forecasts have been revised downward compared to January’s projections, with tariffs and “a highly unpredictable environment” being major reasons for the change. Global growth is expected to be 2.8% in 2025 and 3.0% in 2026, down from the 3.3% for each year that had been previously projected. Intensifying downside risks are also mentioned due to the escalating trade war.

Closer to home, a recent survey of manufacturers by the Federal Reserve Bank of Dallas revealed the most pessimistic overall outlook since the pandemic. Texas is the epicenter of U.S. trade and a production behemoth. The state is highly vulnerable to trade policy.

In short, this stuff matters and needs to be resolved. Stay safe!

Dr. Ray Perryman is president and CEO of the Perryman Group, an economic research and analysis firm based in Waco.

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