Did the World just TACO?
President Trump's aggressive tariff offensive has generated nearly $50 billion in additional customs revenues during Q2 2025, reaching a record $64 billion total as global trading partners largely avoid retaliation.
Only China and Canada have implemented counter-tariffs, while major economies including the EU, Mexico, and Brazil have chosen negotiation over confrontation. Trump's minimum 10% global tariff, 50% steel/aluminum levies, and 25% auto tariffs have fundamentally altered trade dynamics. Chinese exports to the US plummeted by one-third in May following escalated tariffs reaching 145%, though both sides agreed to a 90-day pause reducing rates to 30%. The EU's €72 billion retaliatory package remains unimplemented as Brussels prioritizes negotiations ahead of Trump's August 1 deadline.
This asymmetric response reflects the US's dominant position as the world's largest consumer market, with trade accounting for 20% of Canadian GDP versus only 2% for the US.
Forecast Scenarios (GCHQ)
Likely (55-75%): Negotiated Settlements with Selective Tariff Reductions
Trump will likely secure limited trade concessions from major partners before the August 1 deadline, allowing selective tariff reductions while maintaining baseline protections. The EU's reluctance to implement retaliatory measures, combined with Canada's retreat from confrontational positions, suggests negotiated outcomes are preferred. Treasury Secretary Scott Bessent's behind-the-scenes engagement with European officials indicates administrative willingness to de-escalate in exchange for concessions. However, Trump will maintain tariff threats as ongoing leverage tools, creating a new normal of trade relationships governed by coercive diplomacy rather than multilateral rules.
Realistic Possibility (45-55%): Escalation with China, Accommodation Elsewhere
Sino-American trade tensions may reignite after the 90-day pause expires, potentially pushing tariffs back toward 145% levels while other trading partners secure preferential treatment through bilateral negotiations. China's structural economic challenges and ideological differences with the US make sustained accommodation difficult. Meanwhile, Europe's security dependence and Canada's economic integration create incentives for continued accommodation. This scenario would establish a bifurcated global trade system with harsh US-China restrictions alongside managed relationships with traditional allies.
Unlikely (30-45%): Coordinated Global Retaliation
A coordinated international response remains unlikely despite EU Trade Commissioner Šefčovič's discussions with "like-minded" partners about joint measures. The fundamental asymmetry in trade relationships, combined with individual countries' security and economic dependencies on the US, militates against effective coordination. Even if attempted, such coordination would likely fracture under US pressure and competing national interests. The window for effective retaliation has largely closed as Trump's strategy has successfully isolated potential opponents and created incentives for bilateral accommodation.
