Trump's trade war effects mapped out in eight scenarios
Rabobank has outlined eight scenarios to quantify the potential impact of Trump’s trade war.
Published on April 17, 2025
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United States President Donald Trump's economic policy is causing significant uncertainty for the global economy. After pausing for 90 days levies on several countries, including those part of the EU, the US escalated its action against China, announcing a 145% import tariff on Chinese goods. Beijing retaliated with a 125% duty on American goods. Despite the 90-day pause, Trump's protectionist plans don't seem to be on hold.
Rabobank has calculated eight scenarios to quantify the trade war's impact on the Dutch and global economies. According to the bank, such actions are creating ripples across economies worldwide, contributing to an expected global economic growth of only 2.2% in 2025, a decline from previous projections, and a forecasted reduction in total global trade by 0.2%
In the bank’s baseline, Dutch economic growth is forecasted to reach 1.3% in 2025, down from 1.7%, and 0.6% in 2026, down from 1.2%, with chances of recession at the end of this year or early next year. The US economy will be hit the hardest, as the gross domestic product is expected to contract by 0.6% in 2026 and inflation, a general increase in prices and fall in the purchasing value of money, is forecasted to be 6.5%.
The scenarios
- Scenario 1: Gradual De-escalation. In this scenario, a 10% universal tariff and a 25% sector-specific tariff remain in place; de-escalation is possible but unlikely due to ongoing tensions between the U.S. and China. The imposition of 34% retaliatory tariffs on Chinese goods is a critical factor that complicates diplomatic resolutions. A variant of this, Scenario 1+, sees the superpowers failing to bridge their fundamental differences and significantly increasing the universal import duties on each other.
- Scenario 2: Implementation of Liberation Day Tariffs. This scenario assumes that the U.S. moves forward with 'Liberation Day' tariffs and modest retaliatory measures on specific goods from the EU. Such actions will contribute to an environment of uncertainty that hampers investment and curtails economic activity. A scenario variant (Scenario 2+) foresees an escalation between China and the US and is Rabobank’s baseline for its official estimates.
- Scenario 3: Proportional Retaliation. A scenario where other nations, particularly China, retaliate proportionally to U.S. tariffs reveals the EU and other economies' vulnerabilities, primarily due to their dependency on U.S. defense provisions and energy imports. This could strain political and economic ties, further unsettling markets.
- Scenario 4: Full Escalation. Full escalation envisions the removal of tariff exemptions and a rise in economic distrust analogous to the financial crisis period. This could result in higher risk premiums and depressed productivity, inflicting a long-term economic toll.
- Scenario 5: Global Split. The hypothetical split into two global blocs, Team U.S. and Team China, forecasts significant economic upheaval, particularly for China, which could bear the brunt of this division. In this environment, the U.S. seeks to secure alliances at the expense of China, altering global trade flows.
The impacts of Trump’s trade war
According to Rabobank, the American economy will bear most of the consequences, being directly affected by tariffs, while higher duties in retaliation for other countries will only affect trade with the US. Inflation can surge to 7.2% in 2025 in the full escalation scenario. These higher prices, combined with higher risk premiums and negative productivity effects, lead to lower economic growth. In three of the four scenarios, the economy shrinks in 2026.
In the scenarios, China's economy suffers significantly, partly due to its own countermeasures. Specifically, in the division scenario, China faces negative growth in 2026 and extended slow growth afterward. It is anticipated that the Chinese government will implement domestic stimulus packages to counteract these economic setbacks. China has substantial potential to boost domestic consumption, reducing its dependence on exports.
The impact on the Chinese economy © RaboResearch
Per the analysts, the eurozone is “caught between the two”. In all scenarios, eurozone countries will face higher US import duties than is currently the case. This will cause exports to fall. However, the eurozone still has several other foreign sales markets, while its own sales market is also very large. Countermeasures will cause considerable economic damage, particularly in scenario 4, through higher inflation and lower growth. On the other hand, Rabobank expects that some of the products that China can no longer sell in the US will end up in Europe at relatively low prices.
Impact on the eurozone - © RaboResearch
Impact on the Dutch economy
The Dutch economy faces challenges similar to those faced by the eurozone. Lower economic growth is partly due to stagnating export growth, projected at 0.2% in 2026, significantly impacting the open Dutch economy. Business investments are also expected to decline. However, government contributions and private spending growth are anticipated to be more favorable than the eurozone average. The long-term economic damage in the new baseline scenario is estimated at over €7 billion annually by 2030, or nearly €400 per Dutch citizen. In scenarios 4 and 5, this figure exceeds €1,000.
Inflation in the Netherlands will rise slightly with each trade war escalation, but the effects will be less pronounced than in the US. Retaliatory measures and disruptions in global value chains could increase prices. At the same time, China may sell products in Europe at reduced prices, potentially lowering prices unless the EU implements anti-dumping measures. Additionally, declining energy prices and a weaker US dollar will reduce import inflation.
