Analysts at UBS have projected that President Donald Trump’s tariffs could escalate to an effective rate of 30%, an increase from the current 25% under his recent announcements. This increase would represent the highest tariff level in more than 150 years. UBS anticipates, however, that after a series of retaliatory measures and escalations, tariffs will decrease later this year.
The tariffs, referred to as “Liberation Day” tariffs by President Trump, are already at their steepest in a century, with potential to climb further. A report from UBS analysts on Friday suggested that the latest round of import taxes will raise the effective tariff rate to 25%, significantly up from the 2.5% rate before the 2024 election, and they foresee continued escalation.
The UBS report notes the likelihood of retaliatory actions from the EU and China, predicting that subsequent “reciprocal” responses could lead to even higher U.S. tariffs. Additionally, UBS indicates that certain imports not presently targeted could face future investigations, losing current exemptions, due to the Trump administration’s strong commitment to restrictive trade policies.
On Wednesday, Trump imposed a 34% tariff on China, bringing the total rate to 54%, and introduced a 20% duty on the European Union. In retaliation, China has implemented its own 34% tariff and the EU plans to respond similarly.
UBS expects the effective U.S. tariff rate to peak between 25% and 30%. According to data from Fitch Ratings, a 25% effective rate would be the highest since 1909, and reaching 30% would mark the highest rate since 1872, during President Ulysses S. Grant’s era.
UBS forecasts a decline in tariffs by the third quarter, projecting that the effective rate will settle between 10% and 15% by the end of 2025. Analysts note that several countries have indicated their intention not to retaliate and hinted at potential deals that could lower overall tariff rates. Over the weekend, Vietnam offered to remove all tariffs on U.S. imports, and it was reported that over 50 countries have approached the White House to negotiate tariffs.
UBS suggests that President Trump might face increasing pressure to negotiate, due to possible legal challenges to his tariffs and significant lobbying from businesses seeking policy modifications or exemptions. As the midterm elections approach, political considerations may also influence Trump’s stance. Republican Senator Ted Cruz has warned of a potential “bloodbath” in 2026 if tariffs precipitate a recession.
UBS predicts U.S. GDP growth will be less than 1% in 2025, including an intra-year recession with a 1% GDP decline from peak to trough. Although stocks are expected to recover, UBS has reduced its year-end S&P 500 target from 6,400 to 5,800.
UBS analysts propose several potential resolutions, including increased European defense spending, measures in Asia to curb excess supply dumping, reductions in tariff or non-tariff barriers, or strategies to bolster U.S. inward investment, which could allow all involved parties to claim success.
This article was originally published on Fortune.com.
