What lies ahead for the US economy? Brexit offers clues

America 2025? No, Britain 2016—the day after U.K. voters chose to quit the European Union.

President Trump’s decision to impose wide-scale tariffs raises a question: What happens when a developed economy throws up barriers with its biggest trade partners?

Brexit offers a few clues. Britain’s decision to detach from the EU trading bloc was an unusual experiment in deglobalization. In hindsight, it foreshadowed Trump’s first election victory and was a leading indicator that not everyone was happy about decades of freer trade that led to a broad rise in global prosperity but also created losers in industrialized nations.

Although the effects are still playing out, Brexit has widely come to be seen as an act of economic self-harm. The U.K. economy is likely weaker than it otherwise would have been. Politicians have spent more money and attention on parts of the country that were hardest hit by deindustrialization, but they have struggled to turn things around.

The instant view of financial markets, it turns out, was broadly right.

One thing is certain, and could indicate what is in store for the U.S.: The uncertainty surrounding Brexit damaged business investment, the lifeblood of an economy.

While it is impossible to know for sure, several economic models estimate that Britain’s economy would be trading about 15% more with the rest of the world and be 2% to 5% bigger had it never left the bloc, much of that due to weaker investment. Put differently, the average Brit would be some $1,100 a year better off.

The British public, meanwhile, has delivered its own verdict: Just 30% of Brits now say Brexit was a good idea and only 11% say it has brought more benefits than costs so far, according to a recent YouGov poll.

“Messing around with trade comes with costs," said Alan Winters, an economist at the University of Sussex who specializes in trade. “I think it’s pretty plain British trade took a hit. We imposed trade barriers against our principal supplier and market, and they imposed things back."

Comparing Brexit and Trump’s trade tariffs isn’t apples to apples. The U.K. economy is far more dependent on trade than the U.S., which boasts a much larger and dynamic domestic economy. Brexit wasn’t done to right a trade deficit; the U.K. was seeking to retake control of issues from Brussels such as trade policy, regulation and migration.

And ultimately, Brexit wasn’t about tariffs. A few years after the vote, the U.K. negotiated a zero-tariff trade deal with the EU, though the extra paperwork and customs checks threw sand into what was once a seamless commercial relationship. Brexit defenders say the decision suddenly looks a bit better given that the U.K. got hit with 10% tariffs from Trump this week, half the rate of the EU.

Still, the decisions in the U.K. and U.S. to proceed with Brexit and tariffs, respectively, ignoring the warnings of many economists of the short-term economic pain, bear similar hallmarks.

The sheer size of the U.S. economy means the trade shock won’t be felt as deeply as Brexit was in the U.K. Various economic forecasting models predict the hit to the U.S. economy will be smaller than the Brexit damage: anywhere from 0.4% of gross domestic product in the coming year to 1.5% by 2030.

One clear red flag for the U.S. from Britain’s Brexit experience is the costs of uncertainty. Business investment in the U.K. stalled from the 2016 referendum until about 2022-23, made worse by the pandemic and a chaotic succession of British governments. Weaker investment means less money going into areas like manufacturing and technology that drive productivity and output over the long run.

The U.S. could experience something similar if firms are unsure how long these tariffs will last. The longer the uncertainty, the worse the damage.

“The somewhat confusing nature of today’s news, coupled with uncertainty over how long these tariffs will remain in place, should make for an even less friendly environment for investment spending," JPMorgan chief economist Michael Feroli wrote in a note to clients on Thursday.

Weaker investment could undermine part of the Trump administration’s stated goals in imposing tariffs: drawing factories and manufacturing investment back to the U.S.

“If your company decides to build a T-shirt factory in Mississippi, and then tariffs go back down, then your factory makes no economic sense," says John Springford, an associate with the Center for European Reform think tank.

The Trump administration says the prospect of tariffs has already drawn in some $2 trillion in planned investments from companies that plan to make their goods in the U.S. to avoid tariffs. They also hope the revenue from tariffs will help pay for tax cuts and lower soaring levels of U.S. debt.

Rather than try to diminish uncertainty, Trump seems to seek to leverage it for all kinds of political and diplomatic goals, including trying to get Mexico to crack down on the cross-border drug trade. “With Trump, frankly, I think uncertainty is quite clearly part of the game," said Winters. “With Brexit, uncertainty was collateral damage. But Trump likes the uncertainty—he likes to keep everybody guessing."

Brexit also offers lessons in the predictive powers of financial markets. The prices of British assets, especially the pound, fell sharply after the Brexit vote and have been relatively weak since.

On Thursday, U.S. stocks fell by a total value of about $3.1 trillion, or about 4%, and the dollar fell about 1%—a rare moment when both equities and the national currency fall. That could be a sign of trouble ahead, said Springford. Traditional economic theory holds that imposing tariffs on others usually strengthens a nation’s currency. But in this case, a weaker dollar could be a bet by currency traders that the hit to demand and growth might be bigger than expected.

“The financial markets were telling the Brits this would be bad, and we went ahead," he said, adding that the government felt it couldn’t go back on a referendum result. In this case, a spiral of retaliation from other nations could prompt a surge in nationalistic feeling in America that spurs the government to press on, despite market warnings.

Others are more sanguine. While the U.S. economy is likely to suffer a short-term hit, mostly by raising prices on imports, the Trump administration may yet achieve its goals of raising revenue, reducing the budget deficit and eventually drawing back in some manufacturing (even if it is more automated and less job-intensive), said Wolfgang Munchau, director of risk consulting firm Eurointelligence. He said the real effects will take years to unfold.

Write to David Luhnow at david.luhnow@wsj.com and Max Colchester at Max.Colchester@wsj.com