Global Consequences of Second Round of Tariffs: A General Equilibrium Approach

Srivastava, Archana; Mathur, Somesh K

doi:2026.41.3.623

The Journal of Economic Integration 2026 September;41(3) :623-638.
DOI: https://doi.org/10.11130/jei.2026006

Global Consequences of Second Round of Tariffs: A General Equilibrium Approach

Archana Srivastava¹, Somesh K Mathur²

¹BITS Pilani Hyderabad Campus, Hyderabad, India
²Indian Institute of Technology, Kanpur, India

Corresponding Author: Archana Srivastava ,Email: archana@hyderabad.bits-pilani.ac.in, archana.lucknow@gmail.com

ABSTRACT

This study employs the GTAP 11c database within an applied general equilibrium framework to evaluate the global economic consequences of the second wave of U.S. tariffs announced by President Trump on July 7^th and 9^th, 2025. The analysis is structured around three scenarios: (1) a universal imposition of tariffs by the United States on a wide array of trading partners, (2) a reciprocal retaliatory response by affected countries mirroring the U.S. tariff levels, and (3) a more strategic application wherein India, Vietnam, and the United Kingdom are exempted from the tariffs due to existing or imminent bilateral trade agreements. Results reveal that the U.S. and regions like Western Europe and MENA may experience short-term welfare gains due to tariff revenue and trade diversion. But the heavily targeted countries such as China, Mexico, and Canada suffer substantial GDP and welfare losses. Scenario 3 highlights strategic advantages for exempt nations. They will benefit from enhanced supply chain integration and productivity gains under deep bilateral trade alignment. Although global GDP declines in all scenarios, the contraction remains below 1%. This indicates resilience but revealing systemic vulnerabilities. The findings attract attention towards WTO led multilateral system as this reveal growing shift for selective bilateralism at the expense of multilateral trade norms. Thus, policymakers in beneficiary countries must pursue structural reforms to sustain long-term gains. Also, the adversely affected nations must diversify to mitigate the negative effects.

JEL Classification

F13: Trade Policy; International Trade Organizations
F17: Trade Forecasting and Simulation
D58: Computable and Other Applied General Equilibrium Models
C68: Computable General Equilibrium Models
F12: Models of Trade with Imperfect Competition and Scale Economies

Keywords: Trump Second Round Tariffs | General Equilibrium | GTAP