The Tariff Wars of 2025

How the United States sharply raised tariffs on many trading partners in 2025, how other countries responded, and what economists expected the effects to be.

In 2025, the United States government launched the largest increase in U.S. tariffs in decades. The moves reshaped global trade debates and affected countries including China, Canada, Mexico, the European Union and India.

What happened

Early in 2025, the United States imposed tariffs on imports from China, Canada and Mexico, citing issues including drug trafficking and migration.
On 2 April 2025, the U.S. announced a baseline 10 percent tariff on imports from nearly all countries, plus higher “reciprocal” rates on many trading partners. The higher rates were paused for negotiations, and several countries reached agreements.
Tariffs between the U.S. and China escalated rapidly, rising above 100 percent on some goods in April 2025, before the two sides agreed in May to reduce them sharply for a period while negotiating.
In August 2025, the U.S. raised tariffs on many Indian goods to 50 percent, including an additional 25 percent linked to India’s purchases of Russian oil. India and the U.S. continued trade negotiations.

The average U.S. tariff rate rose to its highest level since the 1930s, according to several estimates.

Economic effects

Economists generally expected:

Higher prices for U.S. consumers and businesses that buy imported goods and inputs, since importers pay tariffs.
Trade diversion: imports shifting from heavily tariffed countries to others.
Uncertainty that discourages investment.
Retaliation by some trading partners, hurting exporters.
Slower global growth: the IMF and others lowered growth forecasts, though effects were smaller than some early fears.

Effects on India

Higher U.S. tariffs threatened labour-intensive Indian exports, such as textiles, garments, gems and jewellery, and shrimp, to India’s largest export market. Exporters looked to diversify markets, and India pursued trade agreements with other partners, such as the United Kingdom, with which it signed a free trade agreement in 2025.

Who pays the tariff?

A U.S. retailer imports shirts from abroad. A new 25 percent tariff is paid by the retailer at the border. The retailer may raise prices for customers, accept lower profits, or press the foreign supplier to cut prices. Studies of earlier U.S. tariffs, in 2018 and 2019, found most of the cost was passed on to U.S. buyers.

Thinking the exporting country pays the tariff

Tariffs are paid by importers in the country imposing them. Some cost may be shared by foreign exporters through lower prices, but evidence suggests much of it falls on domestic buyers.

Key takeaways

In 2025, the U.S. raised tariffs sharply, including a 10 percent baseline on most imports.
U.S.-China tariffs escalated steeply before a truce, and many Indian goods faced 50 percent tariffs from August 2025.
Economists expected higher prices, trade diversion, uncertainty and slower growth.
Tariffs are paid by importers, and past evidence shows most costs fell on domestic buyers.