Discriminatory Tariffs, Trade Diversion, and the Economic Impacts of Recent U.S. Trade Policy

ABSTRACT This paper examines the economic impacts of trade wars and economic decoupling using the Institute of Developing Economies' Geographical Simulation Model (IDE‐GSM), focusing on Trump's “reciprocal tariff” policies announced on April 2 and July 31, 2025. Simulation analysis reveals that protectionist trade policies generate substantial negative‐sum outcomes, with the United States experiencing GDP contractions of 3.0%–5.2% and the global economy declining by 0.8%–1.3%. The analysis shows that relative tariff rates across countries, rather than absolute levels, become the primary determinant of economic impacts for individual countries. Regional economic integration emerges as an effective mitigation strategy, with RCEP deepening generating 1.4 percentage‐point gains in GDP and CPTPP deepening providing 0.6 percentage‐point gains for member countries. JEL Classification: F13, F15, F17.