AN ASSESSMENT OF THE GLOBAL AND DOMESTIC ECONOMIC IMPACTS OF THE U.S. NEW TARIFF POLICY!

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An Assessment of the Global and Domestic Economic Impacts of the U.S. New Tariff Policy

On April 2, 2025, U.S. President Donald Trump announced significant changes in tariff rates applied to trade with countries around the world. This decision, which marks a major shift in longstanding trade policies, is expected to reshape global trade balances and impact domestic economic policies aimed at supporting U.S. industry and reducing the trade deficit. The decision brings both opportunities and risks at the global level, as well as for Turkey.

At a press conference on April 2, 2025, the Trump administration declared a minimum tariff rate of 10% on imports. In addition, higher reciprocal tariffs were set for certain countries to address trade imbalances—34% for China, 20% for the European Union, and 46% for Vietnam, among others. Sector-specific measures, such as a 25% tariff on imported automobiles, were also introduced. These measures are intended to revitalize domestic industry and reduce the U.S. trade deficit .

Global Significance of the Policy

Positive Aspects

  • Domestic Production Incentives: The policy is designed to support U.S. domestic production by imposing high tariff barriers, thereby boosting employment.
  • Reduction of Trade Deficit: By applying reciprocal tariffs, the administration aims to narrow the trade deficit.
  • Foundation for Negotiations: The president’s openness to negotiations with other countries may pave the way for resolving trade disputes in the future.

Negative Aspects

  • Risk of Global Trade Wars: High tariffs can provoke tensions in international trade and potentially spark trade wars.
  • Market Volatility: The policy is likely to trigger sudden fluctuations in global stock and currency markets, increasing overall economic uncertainty.
  • Supply Chain Disruptions: The adjustments could lead to a restructuring of global supply chains and shifts in production locations .

Implications for China

As the world’s production hub, China is likely to face significant challenges in the U.S. market due to the imposition of a 34% tariff. This could result in:

  • Increased Costs: Products imported from China may become significantly more expensive, putting Chinese exporters at a disadvantage.
  • Supply Chain Shifts: U.S. companies might seek alternative suppliers to mitigate cost increases.
  • Political and Economic Pressure: The tariffs could serve as a lever in international negotiations, increasing pressure on China both economically and politically .

Potential Advantages for Turkey

Turkey benefits from a low tariff rate of 10% under the new U.S. tariff scheme, which can yield several advantages:

Competitive Edge

  • Low Tax Burden: With a tariff rate considerably lower than those imposed on competitors such as China (34%), Vietnam (46%), and the EU (20%), Turkish products become more competitively priced in the U.S. market.
  • Price Competitiveness: In sectors like automotive, textiles, and machinery, the lower tariffs help Turkish exporters maintain cost advantages, enhancing their competitiveness in the U.S. market.

Attraction of Foreign Investment

  • Relocation of Production Facilities: Due to the U.S. tax update on high-tech products and advanced production processes, countries seeking to lower their costs are increasingly looking to Turkey. In addition, Turkey’s attractive investment incentives make it a desirable location for establishing production facilities. As highlighted by Sanayi ve Teknoloji Bakanı Mehmet Fatih Kacır in the HIT-30 High Technology Investment Program, long-term financing, tax reductions, and comprehensive incentive packages are designed to transform Turkey into a major hub for high-tech production.
  • Incentives and Support: Foreign investors can benefit from Turkey’s robust incentive framework, which includes exemptions from VAT, customs duty waivers, corporate tax reductions, and social security premium support. These incentives are provided via the e-TUYS system and are further enhanced by regional investment support measures.

Economic Stability and Growth

  • Increasing Export Volume: Data from 2024 indicates that Turkey’s trade volume with the U.S. has been on the rise. The new tariff policy could further consolidate this growth, helping Turkey reach its target of a $100 billion trade volume.
  • Sectoral Development: In sectors such as automotive, textiles, and machinery, the combination of low tariffs and attractive investment incentives is expected to drive production growth and create new employment opportunities.

Turkey’s Strategic Advantages and Foreign Investment Incentives in the Global Economy

Turkey is an attractive destination for global investors due to its strategic location, skilled labor force, robust logistics infrastructure, and competitive production costs. The growing interest in high-tech production in Turkey is driven by two main factors:

  1. U.S. Tax Updates: The higher tariff rates imposed by the U.S. on competitors increase production costs in those countries, while Turkey’s 10% rate offers a cost advantage for manufacturing high-tech products.
  2. Comprehensive Investment Incentives: Turkey offers a wide range of incentives under its General, Regional, Strategic, and Project-Based Investment Incentive programs. These incentives cover VAT exemptions, customs duty waivers, corporate tax reductions, social security premium support, favorable interest rates, and even land allocation and infrastructure support. Foreign investors can obtain an Investment Incentive Certificate through the e-TUYS system, ensuring they receive these benefits.

Sanayi ve Teknoloji Bakanı Mehmet Fatih Kacır’s HIT-30 program exemplifies this approach by providing long-term financing, tax incentives, and grant support for high-tech, R&D-focused investments. These measures are key to Turkey’s strategic plan to significantly boost high-tech exports and production by 2030.

Moreover, reports from the Central Bank of the Republic of Turkey confirm that these incentive policies have been well received by investors, contributing to increased direct foreign investment. Turkey’s geographical proximity, cultural affinity, and transparent legal system further enhance its appeal as a secure and attractive investment destination.

Will Other Countries Establish Production Facilities in Turkey?

Globally, firms seeking to optimize production costs might opt for locations with lower tax burdens. Turkey’s:

  • Strategic Location,
  • Skilled Workforce,
  • Strong Logistics and Trade Infrastructure,
  • Attractive Investment Incentives

make it a compelling choice for foreign investors looking to establish manufacturing facilities. Proximity to U.S., European, and Asian markets, combined with post-investment support and incentive packages, positions Turkey as an alternative production hub within global supply chains.

President Trump’s tariff announcement on April 2, 2025, is aimed at strengthening U.S. domestic markets by boosting local production and reducing the trade deficit, but it also brings significant risks such as global trade tensions and supply chain disruptions.

  • Positive Aspects: U.S. efforts to support domestic production and the potential for renegotiation pave the way for trade policy adjustments, while Turkey’s low tariff rate and comprehensive investment incentives offer strong prospects both globally and domestically.
  • Negative Aspects: High tariffs in other countries may trigger trade wars and market volatility, affecting global supply chains.

For Turkey, the combination of a low 10% tariff rate and state-supported incentive packages not only provides a competitive edge in the U.S. market but also positions the country as a prime location for high-tech production. These factors are likely to encourage foreign investors to set up manufacturing facilities in Turkey, reinforcing long-term economic growth and technological transformation.