Donald Trump introduced reciprocal tariffs ranging from 10% to 39% on dozens of countries using a formula based on trade deficits, which critics call non-transparent due to its failure to consider actual trade barriers of individual nations. How will this methodology affect global markets and world trade? Trump’s 2025 tariffs take effect on August 7th with direct impact on international markets and portfolio strategies.
Switzerland Faces Trump’s 39% Tariffs Due to $38.5 Billion Deficit
Switzerland ranks among the most affected countries with new 39% tariffs, triggering disappointment from the Swiss government. Trump’s formula is straightforward: a country’s trade deficit with the US is divided by its exports to the US, with the result halved and a 10% minimum applied. The US trade deficit with Switzerland reached $38.5 billion last year, automatically resulting in high tariff rates. Rahul Sahgal from the Swiss-American Chamber of Commerce called the situation absurd, noting that even if every Swiss citizen drank bourbon daily and bought a Harley Davidson, it wouldn’t balance the trade relationship.
The Swiss business association Economiesuisse warned about damage to Swiss companies’ competitiveness and the investment climate. Some relief came from news that the pharmaceutical sector will be exempted from these fees, which is important for pharmaceutical sector investments. Swiss companies employ approximately 400,000 people in the United States and the country is the sixth-largest foreign investor in the US.
Canada Faces Increase from 25% to 35%
Canadian tariffs rose from the previous 25% to the current 35%, which Premier Mark Carney called disappointing. Key sectors including lumber, steel, aluminum, and automobiles will be significantly affected according to the Premier, potentially impacting Canadian exports worth tens of billions of dollars. However, goods covered under the USMCA agreement remain exempt from tariffs.
Carney rejected Trump’s argument justifying higher tariffs due to cross-border drug flows. According to the Premier, the Canadian government will focus on strengthening its own economy and continuing negotiations with Washington.
Europe Pays Only 15% in Exchange for Massive Commitments
Unlike the high rates for Switzerland and Canada, the European Union managed to negotiate significantly more favorable terms. The EU reached a framework agreement in turbulent negotiations with a 15% tariff ceiling. As part of a massive deal, the EU committed to purchasing American energy worth $750 billion and investing an additional $600 billion in the US by 2028. European Commissioner Maroš Šefčovič views the result as strengthening stability for European exporters.
Nevertheless, European stock markets reacted with declines:
- German DAX lost 1.7%
- French CAC 40 fell 2.1%
- Portfolio managers show caution despite relatively favorable rates
Trump Changes Asian Markets: Mixed Reactions with Preferences for Allies
Just like Europe, several Asian countries also secured preferential 15% rates through diplomatic negotiations. Japan secured this rate for its key automotive sector while simultaneously committing to invest $550 billion in the US to strengthen American industry. The Japanese central bank warned that uncertainty will have a “major impact on business and household sentiment worldwide.” According to the bank, Japanese automakers will likely absorb costs at the expense of their own margins to avoid price increases in the American market.
South Korea concluded a verbal agreement with the US for a 15% rate instead of the previously threatened 25%. South Korean representative Yeo Han-Koo confirmed that due to time constraints, no written contract exists. However, the local stock market reacted with a sharp decline when the Kospi index dropped 3.88%.
While some countries improved their positions in the new arrangement – Malaysia achieved a reduction from 24% to 19% with exemptions for semiconductors, Thailand secured a reduction to 19%, and Australia achieved the lowest rate of just 10%. Mexico received a 90-day delay for implementing 30% tariffs for further negotiations.
Atakan Bakiskan from Berenberg Bank explained the competitive paradox: when all major countries received the same 15% rate, they compete more among themselves than with American producers, so competitive disruption is smaller than with different rates.
US Tariff Rate to Rise from 2.3% to 18%
The impact of new tariffs extends far beyond individual countries and affects the overall structure of world trade. Reciprocal tariffs and their economic impact are described by economists as a massive blow to global markets with the end of predictability. Stephen Brown from Capital Economics points out that the effective US tariff rate will rise from last year’s 2.3% to approximately 18%. This carries risks of lower global growth and higher inflation.
According to experts, world trade faces three main challenges:
- Effective tariff rates have increased more than sevenfold in just a few months
- The methodology ignores actual trade barriers, relying only on mathematical deficit calculations
- Rules of origin complicate companies’ supply chain decisions
Trump defends his actions as efforts to protect American workers and reduce the US trade deficit. The administration claims that tariff policy will help strengthen domestic production and force foreign countries into fairer trade practices.
Wendy Cutler, former American trade negotiator, highlighted the critical importance of rules of origin in determining genuine product origin. The issue directly relates to implementing 40% tariffs on “transshipped” imports from Asia. Experts agree that countries will face further tariff increases according to presidential decisions.
Market participants react cautiously with milder declines than expected. This is due to partial anticipation of such moves and confidence in the possibility of further negotiations.
Key factors for investments now include:
- Some countries may achieve additional relief through negotiations
- Market volatility will continue due to ongoing uncertainty
- World trade is entering a new phase with higher barriers and less predictability
