Economists have warned that U.S. President Donald Trump’s trade war, which kicked into its highest gear yet on Wednesday, is likely to hurt Americans more than it will any other country.
Taxing all imports will lead to greater costs for U.S. businesses, which will then raise prices for U.S. consumers, and may well bring the U.S. into a recession, a sustained economic decline.
“It will be difficult for the U.S. to avoid a recession if the tariffs stay at the level that’s been announced,” Claudia Sahm, chief economist at New Century Advisors, recently told TIME.
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“The biggest loser of this is definitely the U.S. itself,” says Yuan Mei, assistant professor in the School of Economics at Singapore Management University.
But that doesn’t mean there won’t be a range of knock-on effects that will ripple across the world.
In the last week, J.P. Morgan raised its forecast of the global economy entering a recession by year end from 40% to 60%.
Read More: How To Prepare For A Recession
While Trump’s stated goal for his so-called “reciprocal” tariffs is to increase U.S. manufacturing, the actual effect may be “a dampening of global demand and production,” in both the U.S. and around the world, says Ja-Ian Chong, an associate professor of political science at the National University of Singapore and non-resident scholar with Carnegie China.
To be sure, U.S. manufacturers and importers will be the first to feel the effects, according to Kristina Fong, an economic affairs researcher at Singapore-based think tank ISEAS-Yusof Ishak Institute’s ASEAN Studies Center.
If American importers choose to absorb the cost of the tariffs, their profitability decreases. Fong says that could lead to changes in businesses’ cost structures, such as downsizing operations and laying off workers.
But if importers pass on some or all of the cost of the tariffs onto American consumers, which is more likely, the consumers will tighten their spending habits, Fong says, and the resultant decrease in demand would be felt by the businesses—American and foreign—and also potentially result in layoffs. “Basically, you will be impacted in several ways, no matter how you look at it,” Fong says.
Most products aren’t made and assembled from start to end in one country. A product labelled “made in U.S.A.” or “made in China” might still use components imported from other countries. If there’s lower demand in the U.S., “not only are goods not moving into the U.S.,” says Chong, “the [demand for] components that go into the assembling of those goods will also decline.”
For countries that may decide they want to retaliate against U.S. tariffs, like China, U.S. imports into those countries would follow a “parallel type of process” where demand for U.S. products, which may have been assembled using components made elsewhere, would decrease, Chong says. Producers would then adjust by hiring fewer people or ordering fewer components—which would impact the factories around the world that make those parts.
During Trump’s first term, trade tensions between the U.S. and China pushed firms located in China that still wanted to sell to the U.S. to relocate to other parts of the world. Southeast Asia, in particular, benefitted significantly from the relocation, and American consumers didn’t feel as much of a strain on their wallets, Fong says. This time around, however, there will be a more “broad-based effect” given the levies Trump has announced on nearly every country in the world.
“That opportunity to sideline or skirt around these tariffs is less because everybody is impacted,” Fong says.
Countries like Vietnam, Cambodia, and Bangladesh, which were hit with 46%, 49% and 37% tariffs respectively, will particularly feel the pinch because they are key manufacturing hubs and export heavily to the U.S. For these countries, losing any amount of market share in the U.S. will likely have a painful effect on the local economy. For example, U.S. buyers have already started halting orders from Bangladesh, which last year exported $7.34 billion worth of apparel goods to the U.S., its top export destination. Bangladesh’s apparel sector employs around 4 million workers.
Vietnam, which manufactures 50% of Nike’s footwear and 39% of Adidas’s, is similarly at risk. OCBC estimates it could lose as much as 40% of its total goods exports as a result of the high tariffs, which may lead some companies to relocate their production out of Vietnam or turn others off investing in the country.
Read More: ‘Inflation Day Rather Than Liberation Day’: How the World Is Reacting to Trump’s Latest Tariffs
Ivan Png, an economist at the National University of Singapore, says there’s a chance the U.S. tariffs could reduce prices for consumers outside the U.S. as “major exporters such as China redirect their exports to countries that set lower tariffs than the U.S.,” if production stays up and prices are adjusted to appeal to new, smaller markets. But others, like Mei, warn that potential disruptions to the global supply chain as exporters try to get around the U.S. tariffs could also lead to increased production costs that may be passed onto these consumers.
The ripple effects won’t just extend to producers and consumers of goods that are directly impacted by tariffs. “The way that we manufacture things today isn’t just that you have one guy tightening a screw on a component,” Chong says. Businesses worldwide make use of banking, software, engineering, legal, and other services, many of which the U.S. is a significant exporter. “As you don’t produce so much, you don’t need that many services,” Chong says.
For example, as demand for goods drops, advertising services will also be impacted, which could lead a whole host of businesses to need to cut costs.
The Trump trade war could also have impacts on international security and alliances.
The U.S. is a key trading partner for parts of the world, including Southeast Asia, with which the U.S. also shares important diplomatic and defense ties. “But that can change,” Jayant Menon, a research fellow at ISEAS-Yusof Ishak Institute, tells TIME. “It’ll be a period of adjustment, but it can change, and I think we will see it changing.”
Countries will likely look to diversify their trading patterns and engage more broadly with “more reliable” trading partners, Menon says. Fong sees more countries already ramping up trade with China. “It’s a very slow burn kind of momentum, but that’s always been, I think, the underlying case,” she says.
Png predicts that a potential global recession resulting from the tariffs would be of a similar scale to the 2008 global financial crisis, which triggered an 18-month Great Recession and the worst global economic downturn since the Great Depression. Mei is more cautious, however, saying that, while trade tensions will impact investments, financial hubs like Singapore may relatively be spared the worst, while countries largely dependent on trade will be hit hardest.
Menon said the most recent global economic downturn caused by the COVID-19 pandemic might offer clues as to how a new decline could go. When the world went through the pandemic, there was a sudden demand shock due to a supply shutdown, followed by a “huge spending burst to drag us out of it,” Menon says, which led to a “quick recovery, but a lot of inflation with it.” Menon thinks that cycle might repeat itself, particularly since tariffs lead to inflated prices. We could even end up, he says, with “permanently higher inflation and permanent losses in output,” which would mean “lingering effects in unemployment, inequality, poverty.”
Several countries have already rushed to seek a deal with Trump, hoping that successful negotiation can help stave off the worst economic effects. Vietnam, which was hit by a 46% “reciprocal” tariff, reportedly offered to bring its own tariffs on U.S. products down to 0%, but the U.S. refused.
“The end game has been made very clear,” Menon tells TIME. Trump wants a “balanced bilateral trade position”—it’s not enough for countries to reduce or remove their tariffs on the U.S., they have to buy close to equal the amount of U.S. goods as the U.S. buys from them.
Read More: Why Economists Are Horrified by Trump’s Tariff Math
“These tariffs will not produce that,” Menon says. “Nothing will produce that, because that’s not what trade is about. The way to balance your trade is not to trade at all. You trade with countries because they do things differently and with different costs and prices than you can.”
“The U.S. is at a state of development where it has moved beyond manufacturing,” Menon says. “This is what manufacturing countries are trying to aspire to, and this guy is trying to go the other way.”
“It’s possible,” he adds. “But only if you’re willing to “pay $25,000 for your iPhone.”
Even if Trump ultimately backs down and reverses or lowers many of the tariffs he’s levied on the world, to some extent, Menon says, the damage has already been done. “In a matter of a few months, the U.S. has thrown away decades of goodwill with its allies by taking on this kind of ludicrous stance. When you come out and start penalizing your friends with tariffs based on a nonsensical formula … there’s no turning back.”