US effective tariff has surpassed levels seen during Great Depression: IMF

The effective tariff rate of the United States (US) has risen to its highest level in a century, surpassing levels seen during the Great Depression that began in 1929, the International Monetary Fund (IMF) said on Tuesday. 

The Fund also said that the retaliatory measures from major trading partners have also significantly increased the global tariff rate.

In a blogpost titled ‘The Global Economy Enters a New Era’, the IMF said the global economic system under which most countries have operated for the past 80 years, is being reset. 

“Existing rules are challenged while new ones are yet to emerge. Since late January, a flurry of tariff announcements by the United States, which started with Canada, China, Mexico and critical sectors, culminated with near universal levies on April 2. The US effective tariff rate surged past levels reached during the Great Depression while counter-responses from major trading partners significantly pushed up the global rate,” it added. 

Reflecting the complexity and fluidity of the moment, IMF’s World Economic Outlook on Tuesday presented a range of forecasts for the global economy. While the “reference forecast” reduced global growth to 2.8 per cent, excluding the April 2 reciprocal tariff impact, global growth would have been 3.2 per cent in 2025. In January, the IMF had projected global growth at 3.3 per cent for 2025. The IMF also included a model based forecast incorporating temporary half of country-specific reciprocal tariffs as well as the prohibitively high tariffs on China. 

“This pause, even if extended indefinitely, does not materially change the global outlook compared to the reference forecast. This is because the overall effective tariff rate of the United States and China remains elevated even if some initially highly tariffed countries will now benefit, while policy-induced uncertainty has not declined,” it added. 

IMF said in the medium term, it expects tariffs to decrease competition and innovation and increase rent-seeking, further weighing on the growth outlook.