Trump’s trade war could lead to a global financial crisis

The world is increasingly immersed in tariff wars and uncertainty. After a series of consultations and postponements, the administration of US President Donald Trump is imposing tariffs of 25% on most imports from Canada and Mexico from April 2 and doubling the existing 10% duties on Chinese imports to 20%, which will affect approximately $1.5 trillion in annual imports.

U.S. President Donald Trump’s first steps and decisions could be called a bit chaotic and inconsistent. But it is strategically designed chaos, though obviously without sufficient assessment of the consequences, particularly the impact of retaliatory defense measures.

Trump, even before his inauguration, promised to raise tariffs on imported goods both to geopolitical competitors like China and to neighbors and allies like Mexico, Canada, and the EU. Because of such decisions, even the most long-standing and reliable partners are beginning to doubt the statements of the US authorities and the validity of previously signed documents. At the global level, the result will be a slowdown in the growth of the US and world economies due to growing political and economic uncertainty.

How was it?

Trump’s second term is not a complete tracing of his first cadence, but its study allows us to understand the logic of his actions and their consequences. On March 12, 2025, US tariffs of 25% on all imported steel and aluminum went into effect, whereas during Trump’s first term, similar duties of 25% and 10% respectively were imposed in March 2018 against China, Russia, and Japan. Against the EU, Canada, Mexico, Brazil, Australia and Argentina, the additional duties started to take effect on 01.06.2018. Another difference – now Trump has added steel products to the tariff – steel structures, grids and profiles, mesh and fencing, etc.

Both then and now, the US received retaliatory duties on steel and various consumer goods. However, then the U.S. relatively quickly made exceptions for some countries that were able to continue exporting steel to the U.S. market without duties (Australia, Canada and Mexico – under the USMCA, South Korea itself limited the volume of steel exports) or with reduced rates (Brazil). The EU also received an exemption, but it was temporary. In 2019, the duties for the EU were reinstated, but at the end of 2021, the US replaced the duties with tariff quotas for the EU.

So what resulted from the imposition of duties in Trump’s first cadence? Within a month after the introduction of duties in March 2018, the cost of steel in the U.S. market rose by 5%, aluminum – by 10%. However, prices began to gradually decline thereafter, but the gap with global prices remained larger than before the duties were imposed. Steel prices recovered to the level before the tariffs were imposed only in early 2019.

Reuters estimates that the import duties have had these short-term effects on U.S. steelmakers:

• staffing levels at steel mills and in aluminum production increased from 2017 to 2019 by 6% and 5%, respectively.
• steel production in 2019 increased by 6 million tons and aluminum production by 350,000 tons compared to 2017.

The protective measures at the time supported the US steel industry – utilization rates and profit margins rose, but the gains came at the expense of US end-users as importers passed the cost increases on to them.

“These modest gains were not long term and were not enough to support jobs in the event of a decline in demand, as happened in 2020-2021 during the pandemic. Moreover, higher domestic metal prices negatively impacted metal-consuming industries (manufacturing, construction, etc.) as their raw material costs increased substantially and employment fell,” Reuters writes.

The pandemic in 2020-2021 led to a force majeure situation in the global and US economy, so we can only assess the short-term effects of the duties. Now President Trump is taking a second opportunity to fully realize his previous ambitions to limit steel imports.

We can also assess the impact of the duties on the level of steel exports from the EU to the US. In 2019, this fell by 17.9% – to 3.9 million tons after rising by 1.2% – to 4.7 million tons in 2018. In 2020, as the pandemic raged, European steel exports to the US collapsed by 35.3% – to 2.5 million tons. After it ended, exports increased, exceeding 4 million tons in 2022.

Impact on the global steel market

The introduction of trade duties will have a serious impact on the global steel market not even due to the protective measures themselves, but due to the deterioration of the general economic situation in the world and changes in the direction of steel export flows.

The impact of trade wars on the steel market could be as follows:

1. Global market:

• increased competition in regional markets, as producers may divert their products to other markets due to declining exports to the U.S;
• an increase in the number of safeguard measures, as barriers will need to be strengthened to limit the access of a new wave of imports;
• increased regionalization of the steel trade;
• lower steel prices in unprotected markets and higher in those where trade restrictions are imposed;
• lower iron ore prices, as higher duties are likely to limit China’s steel exports;
• lower iron ore production and exports due to deteriorating demand in China.

2. U.S. market. U.S. imports are expected to decline as higher tariffs will make steel from other countries more expensive for U.S. importers, reducing imports into the country. Steel buyers in the U.S. may face price increases of 10-15% due to import tariffs. Recall that the supply of rolled and semi-finished products to the U.S. market at the end of 2024 amounted to 28.9 million tons (+2.5% y/y).

3. European market. The imposition of US duties exacerbates the already difficult market environment for the European steel industry. Trump’s decision will affect 3.7 million tons of EU steel exports to the U.S. and another 23 million tons of European steel products supplied to the U.S. market from other countries. Germany, Europe’s largest steel producer, stands to lose the most. EUROFER estimates that the EU could lose at least 2 million tons of steel exports and steel products to the US market. However, the main problem is the risk of getting a new shaft of products to the EU market, which is already saturated with imports of cheap steel from Asia, North Africa and the Middle East. This will lead to the need to tighten protective measures on the European steel market.

Impact on Ukraine

The U.S. decision to impose duties on steel will naturally affect the Ukrainian steel industry, as the specific weight of steel products exports in the total exports to the U.S. last year amounted to 57.9% – or $503.3 million out of $869.1 million. The list of Ukrainian steel exports to the U.S. at the end of 2024 looks like this:

• pig iron – 940 thousand tons for $363.4 mln;
• pipes – 92 thousand tons for $112.9 mln;
• bars – 3.3 thousand tons for $15.2 mln;
• wire – 3.9 thousand tons for $4 mln.

According to GMK Center estimates, as a result of the imposition of duties, Ukrainian exports to the USA may decrease by 13%. The main victims may be Metinvest, ArcelorMittal Kryvyi Rih and Interpipe. Pipe exports will suffer most from this decision, while pig iron supplies are not subject to duty.

“Also indirectly may suffer the export of 120 thousand tons of square billets to Bulgaria, which was used for the production of bars and their export to the United States. That is, a total of 213 thousand tons of steel products from Ukraine, or about 5% of total exports, are under threat,” says GMK Center chief analyst Andriy Tarasenko.

At the same time, the retaliatory protective measures of the European Union against the United States may also have a negative impact on the Ukrainian economy.

“We have already had experience when President Trump imposed duties on steel in 2018, then the EU introduced countermeasures. Ukraine fell under them and we had a decrease in exports. So we will see the measures that the EU will implement. I think that it can also, unfortunately, affect us in a negative way,” says the first Deputy Prime Minister – Minister of economy Yulia Sviridenko.

What to expect from the new tariffs?

The introduction of duties for Canada and Mexico in 2025 almost immediately had a negative effect – already in March there were postponements and exemptions for U.S. industries. Recall that in the first cadence, the U.S. canceled duties only when faced not so much with retaliatory trade restrictions as with deteriorating market conditions.

Allies and trading partners probably expected that the U.S. would face a serious downturn in the economy or several leading industries, and American arrogance would go down and openness to compromise would grow, as happened in 2018-2019. However, Trump has already assured that he will not make any exceptions on tariffs on steel and aluminum imports.

The tariffs may bring short-term benefits to certain sectors of the US economy, but in the long term their impact will be negative. This is exactly what the first market reaction to Trump’s statements showed – American stock indices collapsed, the market lost $4 trillion. It can only get worse.

At the moment, we can emphasize such possible consequences of the escalation of the trade war initiated by the Trump administration:

1. A slowdown in the global economy. The OECD has already revised its global GDP growth forecast for 2025 from 3.3% to 3.1%, and for 2026 from 3.3% to 3%. The immediate cause has been rising trade barriers and political uncertainty.
2. Redirection and/or reduction in global trade flows. A trade war between the U.S. and the EU alone jeopardizes direct and indirect trade of about $9.5 trillion per year, although the immediate figures for the commodity groups affected are of course much more modest. The EU countermeasures will affect €26 billion worth of U.S. goods and will take effect in April. Ireland, Finland, Austria, Portugal, Italy and Germany, whose economies are most dependent on exports to the U.S. market, may suffer the most from the increase in duties.
3. Slowdown of the U.S. economy. The Federal Reserve has worsened its forecast for the growth rate of the US economy in 2025 from 2.1% to 1.7%. According to some estimates, tariff wars will cost the U.S. economy 0.65% of GDP and the loss of 600,000 jobs. Moreover, analysts at J.P. Morgan Chase have already raised to 40% the probability of recession in the US.
4. Rising inflation. The trade war will increase the cost of imported materials used by U.S. manufacturers and raise prices for U.S. consumers. The Fed’s forecast for US inflation has already risen from 2.5% to 2.7%. Also, as a result of trade wars, central bank interest rates may go up again.