President Donald Trump's tariff policy is causing significant disruptions in the global economy, exemplified by a new 25% tariff on automobiles and high tariffs on various countries, including a 24% tariff on Japan.

The uncertainty stemming from these tariff policies has a detrimental impact on macroeconomic activities, leading companies and households to delay investments and purchases due to the 'real option effect.'

This policy environment is characterized by heightened uncertainty, contributing to a historically high trade policy uncertainty (TPU) index in both the US and Japan as of April 2025.

Moreover, the uncertainty from tariff hikes diminishes the effectiveness of traditional macroeconomic policies, such as monetary easing and tax cuts, as companies and consumers may remain inactive in response to economic stimulus.

Economists generally agree that tariffs lower economic welfare by distorting resource allocation, and the focus on bilateral trade balances, which underpins Trump's tariffs, is considered flawed.

Preventing unnecessary policy uncertainty is crucial for promoting investment, and while foreign lobbying may be ineffective, internal opposition to tariff policies in the US may grow as the negative impacts on consumers and industries become evident.

Empirical studies confirm that trade policy uncertainty negatively affects the real economy, with estimates suggesting that Japan's GDP could decline by 0.9% due to recent policy uncertainty.

Retaliatory tariffs imposed by other countries can escalate trade conflicts and increase uncertainty, acting as a double-edged sword.

Additionally, the World Trade Organization (WTO) rules could be violated by the US tariffs, and the weakening of the WTO's dispute resolution may hinder efforts to manage trade policy uncertainty.

Despite their expertise, US economists have not significantly influenced current trade policies, leading to calls for them to advocate for a reconsideration of Trump's trade approach.

Overall, the combination of these factors underscores the complex challenges posed by Trump's tariff policies on both domestic and global economic landscapes.