🎛️ Simulation · Intermediate
A Tariff War
The country raises tariffs on all imports to 25%, and trading partners retaliate, slowing the global economy.
The facts
- Average tariff rate rises from 3% to 25%.
- World economic growth slows from 3% to 1.5%.
- Fed and fiscal policy unchanged.
Your predictions
Playing it out…
Why?
Tariffs are taxes on imports, so imported goods (and goods made with imported parts) get more expensive — inflation rises. Retaliation hurts exporters and a slower world economy buys fewer of our goods, so GDP growth slows. Stocks fall as companies expect lower profits. The Smoot-Hawley Tariff of 1930 is a famous historical example.