Fitch Ratings expects lower global growth, higher prices, lower demand and lower corporate profits.

The Trump administration has taken the US back in time when America was poorer, and its policies could make the global economy poorer.

US tariffs have reached levels that are transforming the global economic outlook, significantly raising US recession risks and constraining the Federal Reserve’s ability to lower interest rates further, says Fitch Ratings.

The “Liberation Day” tariff increases outlined by the US government on April 2 were higher than expected. These increases impose a minimum tariff rate of 10% for all US trade partners and sizeable additional increases on a subset of 57 trade partners.

“The adjustments take US effective tariff rates (ETR) to about 20% for imports from the EU and about 64% for China, above our March assumed levels of 15% and 35%, respectively,” Fitch Ratings says.

Other Asian economies will also face much higher tariffs, including Vietnam (a 46% rate), Thailand (36%), Taiwan (32%), India (26%), Korea (25%), Malaysia (24%) and Japan (24%). Some product-specific tariffs remain under discussion. These include semiconductors, pharmaceuticals, copper and lumber.

“We estimate the changes will raise the overall US ETR to about 25%, which would be significantly higher than the 18% we had assumed for 2025 in March, and the highest rate for more than 115 years,” Fitch says.

The ratings agency is projecting US growth in 2025 to be lower than its earlier projection of 1.7%. Recent US consumer sentiment indicators have weakened against a backdrop of equity market volatility, and US consumer spending growth slowed in January and February.

Economists believe that tariff hikes will result in higher consumer prices and lower corporate profits in the US. Higher prices will squeeze real wages, weighing on consumer spending, while lower profits and policy uncertainty will act as a drag on business investment. Upward pressure on goods prices from tariffs may cause the Fed to become more cautious about further rate cuts. “We expect these effects will likely outweigh the benefits US companies might gain from increased protection against foreign competition, Fitch says.

Growth prospects for the rest of the world have also deteriorated since the March GEO projections, particularly in Asia, Fitch points out.

Difficulty in predicting the outcome of the tariff ways will persist given different responses by individual governments. China and the EU have indicated they will respond. “The strong possibility of retaliation by key trade partners raises the risk of further escalation, with the US potentially raising tariff rates even further on countries that take retaliatory trade action,” Fitch continues.

Whatever the case, tariffs are likely to impact the US market negatively, as US companies take stock and tread a fine line between absorbing tariffs and bear the brunt of lower margins and earnings, or pass on price rises to consumers, affecting demand, so where the S&P 500 and Nasdaq Composite finally trough is an unknown.