The Global Economy Is Powering Through a Historic Increase in Tariffs
Trade, production, growth and other global economic vitals are proving resilient almost four months after President Trump’s ‘Liberation Day’ tariffs
- The global economy shows resilience despite tariff increases.
- Businesses are hedging by rerouting goods and adjusting supply chains, while governments support confidence through spending.
- Despite tariff concerns, trade volumes and stock markets are up, with some businesses planning further U.S. expansion.
The global economy is sailing through this year’s historic increase in tariffs, displaying an unexpected trait: resilience.
Faced with extreme uncertainty, businesses and households have surprised economists with their ability to hedge, finding a short-term path through as they await clarity on where tariffs will end up.
Global producers brought forward purchases and rerouted goods destined for the U.S. through third-party countries that are subject to lower tariffs. For the most part, households and businesses have continued to spend and invest despite the uncertainty, analysts say.
The world economy grew at a 2.4% annual rate in the first half of this year, around its longer-term trend, according to JPMorgan.
Trade volumes are buoyant, stock markets on both sides of the Atlantic have rebounded to record highs and growth forecasts from Europe to Asia are being raised.
Investment, manufacturing employment, spending and overall activity all held up globally, according to Goldman Sachs.
“What people have gotten wrong is the chaotic behavior [of trade policy] and the hedging that has introduced,” said Marcus Noland, executive vice president at the Peterson Institute for International Economics in Washington, D.C.
In part, businesses are benefiting from reflexes learned and changes made during the Covid-19 pandemic, such as bulletproofing their supply chains, which compressed margins at the time, but is now paying off. Governments from the U.S. to Germany are also spending lavishly, helping to support confidence.
Some businesses may be building up inventory now in the expectation that tariffs will be higher in the future, said Angel Talavera, an economist at Oxford Economics.
“It seems that the uncertainty is weighing less on economic activity than we thought,” Isabel Schnabel, who sits on the European Central Bank’s six-member executive board, said in an interview published in recent days on the central bank’s website.
The political backlash against globalization that accelerated roughly 10 years ago has also long persuaded many international businesses to rely more on local production to serve their main export markets. Many say the tariffs have underlined the importance of such plans.
EBM Papst, a German manufacturer of fans with around €2.5 billion of annual revenue, equivalent to around $2.9 billion, is planning to build a third factory in the U.S. and is considering whether that factory should have an extension, said Chief Executive Officer Klaus Geissdoerfer. The company expects double-digit revenue growth in the U.S. for years to come, partly due to the construction of data centers supporting the artificial-intelligence boom.
Some American customers have asked the company to localize more production in the U.S. to replace suppliers from Asia who are facing higher U.S. tariffs, Geissdoerfer said. “That would help us to grow 20-30% on top in the U.S.,” he said.
World merchandise trade volumes beat expectations in the first three months of this year, rising by 5.3% from a year earlier, powered by a surge in imports to North America, the World Trade Organization said in a recent report. The WTO increased its forecast for trade in goods this year to 0.1% growth, having previously forecast a 0.2% decline.
In Europe, the manufacturing industry has continued to improve in recent months, with forward-looking indicators for new orders, new export orders and future output all rising to three-year highs. “This suggests that we’re seeing more than just frontloading,” said the ECB’s Schnabel.
Production in the continent’s critical auto sector seems to be holding up well even though it is subject to a 25% tariff and exports to the U.S. have softened, said Adrian Prettejohn, an economist at Capital Economics.
“We expect that the previous stockpiling of goods and the impact of tariffs [will] weigh on eurozone exports, but it is not clear that there will be as dramatic a fall as may have been expected,” Prettejohn said.
Even in China, President Trump’s chief antagonist on trade, the tariff tumult of the past few months hasn’t been as damaging as feared.
Chinese exports to the U.S. were about 10% lower in the first five months of the year than the same period a year earlier as tariffs bit into direct trade between the two economic superpowers. But, over the same period, overall exports grew 6%, Chinese customs data show, helped by rising shipments to Asia, Europe and Africa. Chinese exports to countries including Vietnam, Thailand and Mexico have been especially strong.
Economists say that likely reflects some degree of rerouting of Chinese exports through those countries and on to the U.S. In the first four months of 2025, U.S. imports from Southeast Asia were up 28% year over year, Census Bureau figures show. U.S. imports from Asia overall increased by 10% in the first five months of the year from a year earlier, to $582 billion, despite declining trade with China.
In the U.S. itself, households’ net worth remains high by historical standards as a share of disposable income, potentially allowing consumers to continue spending despite higher prices, Susan Collins, president of the Federal Reserve Bank of Boston, said in a speech Tuesday.
This resilience has allowed some exporters to the U.S. to pass part of the costs of tariffs on to their customers.
Retailers of Parmigiano-Reggiano, the Parmesan cheese produced in a designated area of northern Italy, increased prices in the U.S. to around $43 to $45 per kilogram from $42 this year, partly offsetting an additional 10% tariff applied since April. Sales have continued to surge in the U.S., rising by 9% in the first four months of this year, in line with previous months.
“Tariffs may eventually reduce the number of people that are able to afford [the cheese], but we haven’t seen that yet,” said Nicola Bertinelli, president of the Parmigiano Reggiano Consortium. Cheese importers managed to offset part of the impact by importing more inventory before the tariffs kicked in.
The cheese’s producers recently stepped up their sales efforts in the U.S., sponsoring this year’s Miami Open tennis tournament and unveiling a partnership with the New York Jets football team.
U.S. imports from Europe surged by 37% in the first five months of the year from a year earlier, to $421 billion, with moderate growth continuing in April and May, according to Census Bureau data.
Elevated profit margins at U.S. businesses suggest that they are able to bear some of the increased costs from tariffs, the Boston Fed’s Collins said. “As a result, the adverse impact of tariffs on labor market conditions and economic growth may be more limited,” she said.
To be sure, some of the strength in trade could unwind as firms slow their purchases in the coming months as payback for earlier hefty orders to beat the U.S. tariffs, economists say.
The global economic shrug also seems to have emboldened the Trump administration to press for even higher tariffs. And some economists say it is possible the shock will come with a delay.
“Probably, people did expect more immediate effects,” said the Peterson Institute’s Noland. Brexit, which didn’t cause the British economy to seize up when it happened but had a negative cumulative effect over time, could be a good analogy, Noland said.
The level of tariffs also matters. A 10% uniform levy on all U.S. imports might have a negligible economic effect, whereas rates of 30% or 50% could be much more problematic, Noland said.
European Commission President Ursula von der Leyen warned recently that such levels could cause trade between the European Union and the U.S. to freeze.
