In response to the Donald Trump administration’s second-term tariffs, Canada, China, Mexico, and the European Union (EU)—the United States’ largest trade partners—have announced or threatened retaliatory tariffs.

How do retaliatory tariffs work?

A tariff is a tax on foreign-made goods, which makes them more expensive to import. To get a better idea of how retaliatory tariffs could affect the United States, let’s look at what happened to American soybean farmers during Trump’s first term. Soybeans are the United States’ largest agricultural export to China.

In 2017, U.S. soybean exports to China totaled $12 billion, near an all-time high. Then in 2018, the United States placed tariffs on $34 billion worth of Chinese non-agricultural goods, and China retaliated with tariffs on U.S. soybeans and other products. Soybean exports to China plummeted, with U.S. farmers suffering substantial losses.

U.S. farmers’ losses were Brazilian farmers’ gains. Brazil, the world’s leading soybean producer, increased soybean exports to China and has remained its top supplier.

U.S. soybean exports to China recovered after the two countries signed a trade deal in 2020 but have declined somewhat in recent years as China has sought to become less reliant on imported soy.

From 2018 to 2019, U.S. farmers suffered $26 billion in losses due to China’s retaliatory tariffs. In response, the Trump administration provided $28 billion in bailouts to farmers across the two years.

How are countries retaliating against Trump’s 2025 tariffs?

The second Trump administration has largely taken a blanket approach with tariffs, initially targeting all goods from Canada, China, and Mexico, as well as all aluminum and steel imports, and planning reciprocal tariffs on all trade partners. U.S. trade partners, meanwhile, have taken a more targeted approach aimed at specific U.S. products.

Canada

On March 4, Canada imposed tariffs on U.S. imports including agricultural goods, appliances, motorcycles, apparel, certain paper products, and footwear. In response to Trump waiving tariffs for Canadian imports covered under the U.S.-Mexico-Canada Agreement (USMCA), Canada delayed a second round of tariffs on goods ranging from agricultural and aerospace products to electric vehicles until April 2.

On March 10, the Canadian province of Ontario imposed a surcharge on electricity exported to Michigan, Minnesota, and New York, but later suspended this. However, in response to U.S. tariffs on aluminum and steel imports, Canada on March 12 announced additional tariffs on those two U.S. metals, as well as other goods.

China

China has also imposed retaliatory tariffs on the United States. The first round went into effect on February 10, affecting coal, liquefied natural gas, crude oil, agricultural machinery, large vehicles, and pickup trucks. After Trump increased tariffs on China in early March, Beijing announced a second round of tariffs starting March 10; this included 10 percent tariffs on chicken, wheat, corn, and cotton products, as well as 15 percent tariffs on a range of agricultural products, including soybeans.

In addition, China has enacted export controls on critical minerals, launched an antitrust investigation into Google, and added more than a dozen U.S. companies to their Export Control and Unreliable Entity lists. These measures will not only have the potential to disrupt U.S. supply chains but also harm the global economic competitiveness of U.S. businesses.

European Union

Likewise, the EU has stated that “unjustified” U.S. tariffs on European aluminum and steel “will not go unanswered,” and announced retaliatory tariffs on March 11. Specifically, the bloc plans to reimpose 2018 and 2020 retaliatory tariffs against the United States but also put into place new tariffs following discussions among EU member states in March.

Mexico

Mexico, meanwhile, planned on announcing retaliatory tariffs on March 9, but did not follow through after Trump exempted Mexican goods covered by the USMCA. On March 9, President Claudia Sheinbaum affirmed Mexico’s commitment to curb fentanyl trafficking and said she expects the United States to continue preventing arms trafficking into Mexican territory. If Mexico does choose to implement retaliatory tariffs—particularly after the exemption on USMCA goods expires on April 2—it is likely that they will target U.S. products such as vegetables, fruits, beer, and spirits.

Many of these retaliatory tariffs are targeting industries in parts of the country that supported Trump in the 2024 election, a move that some experts say is designed to maximize leverage. Examples include Canadian tariffs on fruit from Florida and motorcycles and coffee from Pennsylvania, and Chinese tariffs that will affect farming and manufacturing communities in the Midwest and Rust Belt. Ultimately, however, the economic cost will be felt throughout the country.

How could these retaliatory tariffs hurt the United States?

U.S. exports, specifically from the agriculture and livestock sectors, will decline in the short term as trade partners reduce their imports. U.S. producers will suffer from decreased revenue—as U.S. soybean farmers did during the 2018–19 trade war—while other countries will seek to fill the gap left by the United States. Soybean farmers have still not fully regained their market share of soybean exports to China.

Retaliatory tariffs could also result in an escalation of existing U.S. tariffs, hurting consumers as businesses pass on the costs of tariffs in the form of higher prices. The average U.S. household is already expected to face a cost increase of more than $1,200 per year as a result of existing U.S. tariffs. The imposition of retaliatory tariffs also raises other concerns, including the potential effects on the U.S. stock market and allies’ declining trust in U.S. economic leadership.

To read the article as it was published on the Council on Foreign Relations website, please click here. 

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The March 2025 edition examines tariffs and their impact on global trade. As an important trade policy tool, tariffs serve as a mechanism to protect domestic industries and generate government revenue.

However, high import duties can increase costs for businesses and consumers, potentially stifling economic growth and competitiveness. Policymakers must strike a balance between leveraging tariffs for economic development and integrating into the global economy through trade liberalization.

The report also presents new trade data and projections across regions, industries and sectors, covering 2024 and early 2025. While global trade reached a record $33 trillion last year, the outlook for 2025 remains uncertain.

Key takeaways on tariffs

• Today, about two-thirds of international trade occurs without tariffs, either because countries have chosen to reduce duties under most-favoured-nation (MFN) treatment or through other trade agreements.
• However, tariff levels applied to the remainder of international trade are often very high, with significant differences across sectors. Agriculture remains highly protected, manufacturing still encounters trade barriers in key industries, while raw materials generally benefit from low tariffs.
• Developing countries face higher duties that limit market access. Agricultural exports from these nations face import duties averaging almost 20% under (MFN) treatment. Meanwhile, textiles and apparel remain subject to some of the highest tariff rates (import duties average close to 6%), limiting developing countries’ competitiveness in these industries.
• South-South trade (trade between developing countries) still faces high tariffs. For example, trade between Latin America and South Asia faces an average tariff of about 15%.
• Tariff escalation discourages developing economies from exporting value-added goods, hindering industrialization. This refers to the practice of applying higher tariffs on finished goods than on raw materials or intermediate inputs. Designed to protect domestic industries, this tariff structure also discourages manufacturing in countries that produce raw materials, creating a disincentive to move up the value chain.

Key trade facts and figures

• Global trade hit a record $33 trillion in 2024, growing by 3.7% ($1.2 trillion). Most regions saw positive growth, except for Europe and Central Asia.
• Services led the expansion in 2024, growing 9% annually and adding $700 billion (nearly 60% of the total growth). Trade in goods grew at a slower 2%, contributing $500 billion. However, growth in both sectors slowed in the second half of 2024, with services growing just 1% and goods less than 0.5% in the fourth quarter.
• Developing economies’ trade grew faster. Their imports and exports rose 4% for the year and 2% in the fourth quarter, driven mainly by East and South Asia. Meanwhile, developed economies saw their trade stagnate for the year and drop by 2% in the fourth quarter.
• Merchandise trade imbalances widened. The United States trade deficit with China reached -$355 billion, widening by $14 billion in the fourth quarter, while the US deficit with the European Union increased by $12 billion to -$241 billion. Meanwhile, China’s trade surplus reached its highest level since 2022. And the EU reversed previous deficits, posting a trade surplus for the year.
• Trade remained stable in early 2025, but uncertainty looms. Mounting geoeconomic tensions, protectionist policies and trade disputes signal likely disruptions ahead. Recent shipping trends also suggest a slowdown, with falling freight indices indicating weaker industrial activity, particularly in supply chain-dependent sectors.

To read the Policy Insight as it was published by the United Nations Trade and Development click here.

To read the PDF as it was published by the United Nations Trade and Development click here.

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Canada and Mexico

Since President Trump took office on January 20, 2025, several tariff measures on Canada and Mexico have been announced and then reeled back. There has been a flurry of on-again, off-again tariff announcements. Readers can find the latest news at The White House Fact Sheet website. At the time of this writing, most of the tariffs on Mexico were lifted, but steep tariffs on steel and aluminum imports from Canada may still be imposed.

On April 2, President Trump plans to impose “reciprocal tariffs” on goods from a wide range of countries, where the U.S. tariff would match the tariffs imposed on U.S. exports in each country. It has been reported that Canada and Mexico may escape reciprocal tariffs if they continue to make progress on border security and fighting fentanyl.

China

On March 3, President Trump imposed an additional 20% tariff on all Chinese imports (this covers two cumulative rounds of 10% tariffs since he took office. i.e., 10% + 10% = 20%). In response, China announced swift retaliation. Once again, U.S. agriculture is the target of China’s retaliation. Specifically, China is imposing 10% retaliatory tariffs on U.S. soybeans, pork, beef, sorghum, fruits and vegetables, and dairy; and 15% tariffs on U.S. corn, wheat, cotton, and chicken.

This may feel like déjà vu for many U.S. farmers, who weathered the 2018-2020 trade tensions, including suffering major export losses. Overall, the U.S. Department of Agriculture’s Economic Research Service (ERS) reports that China accounts for approximately 17% of U.S. agricultural exports. China remains a key market for many U.S. producers.

Remembering the 2018 Trade War

In 2018, President Trump announced several rounds of tariffs on Chinese imports under Section 301 of the U.S. Trade Act of 1974. China wasted no time in retaliating and targeted U.S. agriculture. U.S. agricultural export losses due to the trade war totaled $27.2 billion, or annualized losses of $13.2 billion. The U.S. government provided farmers with financial assistance to help weather the storm, allocating nearly $28 billion in direct payments to farmers over 2018 and 2020. If China and other countries retaliate again, similar export losses may follow.

Soybeans, corn, and wheat were among the commodities that suffered the greatest export losses, alarming industry participants. Within two to three years, however, U.S. export values mostly bounced back albeit with a slightly different country mix. The experience revealed strengths and vulnerabilities in U.S. agriculture. Over the long term, fundamentals like U.S. soil fertility, yield, and innovation work in the sector’s favor. But the growing uncertainty around trade policy and deterioration of U.S.-China relations loom large. As Brad Lubben, a University of Nebraska-Lincoln agricultural economics professor, noted, “Supply chains and markets shifted, with countries like Brazil and Argentina exporting more soybeans to China to fill the demand previously filled by U.S. farmers.”

Will Financial Assistance for Farmers be there Again?

The Trump Administration’s financial assistance to farmers over 2018-2020 was made possible with funds from the Commodity Credit Corporation’s Market Facilitation Program. The Commodity Credit Corporation (CCC) is a government-owned entity within the U.S. Department of Agriculture (USDA). Trump was able to draw upon that USDA account. In 2018, $12 billion was withdrawn to be allocated to U.S. farmers. In 2019, $16 billion was withdrawn for a total of $28 billion (just about matching the export loss U.S. farmers incurred due to the trade war).

The Trump Administration did not require congressional approval for these payments since the CCC already had the authority to disburse funds for farm assistance.

The U.S. government could use the CCC again to support farmers if another trade war occurs, but there are some limitations and political considerations.

For one, the CCC has an annual borrowing limit of $30 billion from the U.S. Treasury. The USDA can unilaterally use CCC funds for farm aid without requiring congressional approval if it falls within the CCC’s mandate.

As of now, USDA still has broad discretion to use CCC funds. There are alternative mechanisms. For instance, instead of using the CCC, the government could provide direct congressional appropriations, although that would require legislative approval. Other emergency aid programs (e.g., disaster relief) could be used if a new trade war leads to farm losses that exceed $30 billion.

The Big Upfront Hits on Key Commodities

China accounted for the vast majority (94%) of U.S. agricultural export losses due to retaliation. 

Following China’s retaliation, U.S. exports of soybeans, wheat and corn fell by 77%, 61% and 88%, respectively.

U.S. soybean exporters took the brunt of it, absorbing 71% of the annualized losses caused by retaliatory tariffs; corn and sorghum absorbed 8%. Nebraska also took more than its fair share of export losses—the state represents 4.6% of US agricultural exports but represented 5.6% of the export losses.

Partial Truce

In January 2020, the United States and China called a partial truce and signed the Phase One trade deal, officially known as the U.S.-China Phase One Economic and Trade Agreement. As part of the Phase One deal, the United States agreed to suspend further tariffs and even reduce some existing duties. China agreed to a series of changes that would make it easier for U.S. businesses to operate in China, and to purchasing $40 billion of agricultural products per year on average from the United States for two years. A few months later in March 2020, China began to exempt some products from its retaliatory tariff lists, including soybeans and pork.

China did not fulfill its Phase One commitments although agriculture fared better than other sectors. Chad Bown found that China’s purchases of U.S. agricultural products over 2020 and 2021 reached 83% of the Phase One commitment, which was better than manufacturing (59%) or services (54%).

Non-trade factors are important in understanding post-Phase One activity. For instance, China’s economic slowdown (associated with the global pandemic) likely hindered, in part, its ability to fulfill its Phase One purchasing commitments. Meanwhile, China’s rebuilding of its pig herd, which suffered African Swine fever in 2019, contributed to its expanded pork imports from the United States.

Since the trade war, many industry observers have focused less on import values and more on market shares, specifically, U.S. agriculture market share of China’s imports. By that metric, there was some bounce back to nearly pre-trade war shares, but it appears tenuous. In 2017, the year before the trade war, U.S. agricultural market share (by value) in China was 20%. That share dropped sharply to 12% in 2018 and even further to 10% in 2019. But by 2022, the U.S. share of China’s agricultural imports reached 19%, just one percentage point shy of the pre-trade war share.

However, China has indicated a desire to diversify away from the United States in key agricultural products such as corn and soybeans as a way to shield itself from any fallout from trade wars. Other suppliers including Brazil, Argentina and South Africa are reportedly keen to take advantage of US-China trade tensions—Argentina recently received approval from the Chinese government to ship corn to China.

No Substitute for Market Access

Fundamentals like yields and innovation bode well for the future of U.S. agriculture, but even those advantages have limits. Yields for U.S. major crops tend to be on the higher end across the world’s largest exporters. For the last three marketing years, U.S. yield was the second highest in soybeans, by far the highest in corn, and the third highest in wheat. But Brazil achieves slightly higher yields on soybeans, a crop with relatively low fertility needs. And while Brazil’s corn yields are less than half U.S. yields despite their higher usage of fertilizer, Brazil has two, sometimes three growing seasons for corn.

On innovation, the United States generally has a more robust research and development infrastructure in the ag biotech sector, which will only become more important as agricultural producers struggle to adapt to changing weather patterns and new diseases. Maintaining a strong innovation climate requires the U.S. to maintain its robust patent system and intellectual property rights environment.

Market Relief is Great, but Farmers Seek More Trade and New Markets

In sum, retaliatory tariffs imposed by China and others initially dealt a big blow to U.S. agricultural exports, particularly in key commodities like soybeans, corn, and wheat, and particularly for Nebraska exporters. At first, these sectors exhibited resiliency and U.S. shares in China’s agricultural imports nearly recovered to pre-trade war levels, but now they appear to be dropping off again. Further, while yields and innovation tend to favor U.S. agriculture relative to key competitors, another bruising trade war will further invite other market participants to step in.

Secretary of Agriculture Brooke Rollins initially elicited cautious optimism from U.S. farmers. Her proactive stance in addressing the potential repercussions of trade tensions on U.S. agriculture is welcome, but America’s farmers and ranchers have repeatedly called for greater market access abroad, a science-based agricultural trade policy, and pursuit of strong ag biotech provisions in future trade agreements, which are more consistent with long term viability in U.S. agriculture.

This sentiment was strongly reinforced in American Soybean Association President Caleb Ragland’s recent interview with AgriPulse in which he said, “Market relief is great, but the reality is that it’s a band-aid on an open wound. What we need is trade, free trade, open trade, more of it, new markets, more markets that already exist. We’ve got to find ways to increase demand for our products because long term, that is the only thing that is going to keep the farm economy strong and productive.”

To read the full research blog, please click here. 

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• President Trump has threatened and imposed a variety of new tariffs for his second term in office, from universal baseline tariffs to country-specific tariffs.
• We estimate that the imposed tariffs on China would reduce long-run GDP by 0.1 percent, the proposed tariffs on Canada and Mexico by 0.3 percent, the proposed expansion of steel and aluminum tariffs by less than 0.05 percent, and the proposed tariffs on motor vehicles and motor vehicle parts by 0.1 percent—before accounting for foreign retaliation.
• The first Trump administration imposed tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.
• The Biden administration kept most of the Trump administration tariffs in place, and in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles.
• We estimate the 2018-2019 trade war tariffs imposed by Trump and retained by Biden reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.
• Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.

2025 Trade War Timeline

President Trump signed an executive order on January 20, 2025, instructing certain cabinet secretaries to develop reports on trade practices and recommendations for tariffs due by April 1, 2025. Since then, several new tariffs and tariff investigations have been threatened, initiated, and/or imposed.

Country-Specific Tariffs:

• Canada, Mexico, China: President Trump signed three executive orders on February 1, 2025, to impose tariffs on Canada, Mexico, and China using International Emergency Economic Powers Act (IIEPA) authority. The 10 percent tariffs on all imports from China took effect on February 4, 2025. The tariffs on Canada and Mexico received a 30-day suspension and are scheduled to take effect March 4. On February 27, Trump said the tariffs on China will increase by another 10 percent beginning March 4.
• China Retaliation: China announced retaliation on about $13.9 billion worth of US exports at rates of 10 percent and 15 percent which took effect on February 10.
• Reciprocal Tariffs: President Trump signed a presidential memorandum on February 13, 2025, to develop a plan for increasing US tariffs in response to other countries’ tariffs, tax policies, and any other policies including exchange rates and unfair practices. The recommendations are due April 1, 2025.
• European Union: President Trump announced plans on February 26, 2025, to impose tariffs of 25 percent on imports from the European Union. The authority to impose these tariffs has not been specified.

Product Specific Tariffs:

• Steel and Aluminum: President Trump signed two proclamations on February 10, 2025, to expandthe existing Section 232 tariffs on steel and aluminum. The orders end all existing exemptions for the tariffs, expand the list of derivative articles, and raise the tariff rate on aluminum from 10 percent to 25 percent. The changes are scheduled to take effect March 12, 2025.
• Autos: President Trump announced on February 14, 2025, that he plans to impose tariffs on auto imports beginning on April 2, 2025. He said on February 18 the rate on autos would be “in the neighborhood of 25 percent” while the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.
• Copper: President Trump directed the Commerce Department on February 25, 2025, to begin a Section 232 national security investigation for copper imports; the findings of the report are due by November 22, 2025.
• Semiconductors and Pharmaceuticals: President Trump said on January 27, 2025, he would announce new tariffs on computer chips, semiconductors, and pharmaceuticals. On February 18 he announced the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.

2025 Trump Tariffs: Economic Effects

President Trump has imposed and threatened a variety of tariffs. We model the following policies:

• A 20 percent tariff on all imports from China and ending de minimis treatment of all imports from China.
• A 25 percent tariff on all imports from Mexico.
• A 25 percent tariff on all imports from Canada (excluding energy resources under HTS codes 2709, 2710, 2711, and 2716, which face a 10 percent tariff).
• A 25 percent tariff on all imports from the European Union.
• Expansions to the Section 232 steel and aluminum tariffs
  • Ending the country exemptions for the existing steel and steel derivatives tariffs, which increases imports subject to the tariffs from $5.5 billion to $34.6 billion (excluding interactions with tariff rate quotas)
  • Ending the country exemptions for the existing aluminum and aluminum derivatives tariffs, which increases imports subject to the tariffs from $6.1 billion to $18.5 billion (excluding interactions with tariff rate quotas)
  • Increasing the tariff rate on aluminum and aluminum derivatives from 10 percent to 25 percent
  • Expanding the steel and aluminum derivatives list to other steel and aluminum derivative articles, which increases steel imports subject to tariffs by $38.1 billion and aluminum imports by $6.2 billion
  • Excluding the expanded articles outside chapters 73 and 76 (Note: We exclude due to lack of data on the steel and aluminum content of these products. The excluded imports totaled $99.8 billion in 2023; however, the tariffs would not apply to the full import value. For example, the tariffs would apply to the metals content of tennis rackets, fishing reels, and some types of furniture.)

• A 25 percent tariff on autos, which we illustrate by applying the tariff to imports of motor vehicles and motor vehicle parts under HTS codes 8703 (valued at $224.4 billion in 2024) and 8708 (including, where possible, parts related to 8703 only, valued at $61.8 billion in 2024).
• Tax Foundation will model additional tariff proposals when more details become available.

We estimate that before accounting for any foreign retaliation, the tariffs on Canada, Mexico, China, and motor vehicles would each reduce US economic output by 0.1 percent; the tariffs on the European Union would reduce US economic output by 0.2 percent; and the expansion of the steel and aluminum tariffs would reduce US economic output by less than 0.05 percent.

China has announced it will impose retaliatory tariffs on about $13.9 billion worth of US exports effective February 10. Certain US exports of coal and liquefied natural gas (totaling $3.2 billion in 2024) will face a 15 percent tariff, while exports of oil, agricultural machinery, and large motor vehicles (totaling $10.7 billion in 2024) will face a 10 percent tariff. Because the retaliatory tariffs are currently limited, we do not model their macroeconomic or revenue effects.

If imposed on a permanent basis, the tariffs would increase tax revenue for the federal government. We have modeled each tariff in isolation; however, if tariffs are imposed together, and tariff rates stack on top of existing tariffs, the revenue raised would be lower as imports would fall by a greater amount. Revenue is lower on a dynamic basis, a reflection of the negative effect tariffs have on US economic output, which reduces incomes and resulting tax revenues. Revenue would fall more if foreign countries retaliated, as retaliation would cause US output and incomes to shrink further.

We estimate the following 10-year conventional and dynamic revenue effects:

• China Tariffs: $373.8 billion conventional, $323.1 billion dynamic
• Canada Tariffs: $470.6 billion conventional, $406.6 billion dynamic
• Mexico Tariffs: $662.6 billion conventional, $572.4 billion dynamic
• European Union Tariffs: $786.3 billion conventional, $679.2 billion dynamic
• Expanded Steel and Aluminum Tariffs: $123.9 billion conventional, $123.5 billion dynamic
• Motor Vehicle and Parts Tariffs: $404.7 billion conventional, $349.8 billion dynamic

To estimate ending de minimis treatment, we rely on Congressional Research Service (CRS) estimates that de minimis imports from China totaled nearly $45 billion in fiscal year 2021. We use CRS data to construct a baseline of de minimis imports from China and assume that most de minimis imports would face the existing Section 301 tariff rate of 7.5 percent. We assume a higher elasticity for ending de minimis (-1.5) than we do for our broader tariff modeling.

Altogether, the tariffs would reduce after-tax incomes by an average of 1.7 percent in 2026. Factoring in how incomes would shrink further on a dynamic basis as tariffs reduce US economic output, we estimate after-tax incomes would fall by 2.2 percent.

We estimate the average tariff rate on all imports would rise from its baseline level of 2.5 percent in 2024 to 13.8 percent if all the tariffs President Trump has proposed as of February 27, 2025, were imposed. The average tariff rate on all imports under Trump’s proposed tariffs would be the highest since 1939.

2024 Campaign Proposals

Tariffs featured heavily in the 2024 presidential campaign as candidate Trump proposed a new 10 percent to 20 percent universal tariff on all imports, a 60 percent tariff on all imports from China, higher tariffs on EVs from China or across the board, 25 percent tariffs on Canada and Mexico, and 10 percent tariffs on China.

We estimate Trump’s proposed 20 percent universal tariffs and an additional 50 percent tariff on China to reach 60 percent would reduce long-run economic output by 1.3 percent before any foreign retaliation. They would increase federal tax revenues by $3.8 trillion ($3.1 trillion on a dynamic basis before retaliation) from 2025 through 2034.

2018-2019 Trade War: Economic Effects of Imposed and Retaliatory Tariffs

Using the Tax Foundation’s General Equilibrium Model, we estimate the Trump-Biden Section 301 and Section 232 tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by 142,000 full-time equivalent jobs. The reason tariffs have no impact on pre-tax wages in our estimates is that, in the long run, the capital stock shrinks in proportion to the reduction in hours worked, so that the capital-to-labor ratio, and thus the level of wages, remains unchanged. Removing the tariffs would boost GDP and employment, as Tax Foundation estimates have shown for the Section 232 steel and aluminum tariffs.

We estimate the retaliatory tariffs stemming from Section 232 and Section 301 actions total approximately $13.2 billion in tariff revenues. Retaliatory tariffs are imposed by foreign governments on their country’s importers. While they are not direct taxes on US exports, they raise the after-tax price of US goods in foreign jurisdictions, making them less competitively priced in foreign markets. We estimate the retaliatory tariffs will reduce US GDP and the capital stock by less than 0.05 percent and reduce full-time employment by 27,000 full-time equivalent jobs. Unlike the tariffs imposed by the United States, which raise federal revenue, tariffs imposed by foreign jurisdictions raise no revenue for the US but result in lower US output.

Tariff Revenue Collections Under the Trump-Biden Tariffs

As of the end of 2024, the trade war tariffs have generated more than $264 billion of higher customs duties collected for the US government from US importers. Of that total, $89 billion, or about 34 percent, was collected during the Trump administration, while the remaining $175 billion, or about 64 percent, was collected during the Biden administration.

Before accounting for behavioral effects, the $79 billion in higher tariffs amount to an average annual tax increase on US households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per US household, on average. The actual cost to households is higher than both the $600 estimate before behavioral effects and the $200 to $300 after, because neither accounts for lower incomes as tariffs shrink output, nor the loss in consumer choice as people switch to alternatives that do not face tariffs.

Historical Evidence: Tariffs Raise Prices and Reduce Economic Growth

Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.

Tariffs could reduce US output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.

Alternatively, the US dollar may appreciate in response to tariffs, offsetting the potential price increase for US consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower US output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.

Many economists have evaluated the consequences of the trade war tariffs on the American economy, with results suggesting the tariffs have raised prices and lowered economic output and employment since the start of the trade war in 2018.

• A February 2018 analysis by economists Kadee Russ and Lydia Cox found that steel‐​consuming jobs outnumber steel‐​producing jobs 80 to 1, indicating greater job losses from steel tariffs than job gains.
• A March 2018 Chicago Booth survey of 43 economic experts revealed that 0 percent thought a US tariff on steel and aluminum would improve Americans’ welfare.
• An August 2018 analysis from economists at the Federal Reserve Bank of New York warned the Trump administration’s intent to use tariffs to narrow the trade deficit would reduce imports and US exports, resulting in little to no change in the trade deficit.
• A March 2019 National Bureau of Economic Research study conducted by Pablo D. Fajgelbaum and others found that the trade war tariffs did not lower the before-duties import prices of Chinese goods, resulting in US importers taking on the entire burden of import duties in the form of higher after-duty prices.
• An April 2019 University of Chicago study conducted by Aaron Flaaen, Ali Hortacsu, and Felix Tintelnot found that after the Trump administration imposed tariffs on washing machines, washer prices increased by $86 per unit and dryer prices increased by $92 per unit, due to package deals, ultimately resulting in an aggregate increase in consumer costs of over $1.5 billion.
• An April 2019 research publication from the International Monetary Fund used a range of general equilibrium models to estimate the effects of a 25 percent increase in tariffs on all trade between China and the US, and each model estimated that the higher tariffs would bring both countries significant economic losses.
• An October 2019 study by Alberto Cavallo and coauthors found tariffs on imports from China were almost fully passed through to US import prices but only partially to retail consumers, implying some businesses absorbed the higher tariffs, reducing retail margins, instead of passing them on to retail consumers.
• In December 2019, Federal Reserve economists Aaron Flaaen and Justin Pierce found a net decrease in manufacturing employment due to the tariffs, suggesting that the benefit of increased production in protected industries was outweighed by the consequences of rising input costs and retaliatory tariffs.
• A February 2020 paper from economists Kyle Handley, Fariha Kamal, and Ryan Monarch estimated the 2018–2019 import tariffs were equivalent to a 2 percent tariff on all US exports.
• A December 2021 review of the data and methods used to estimate the trade war effects through 2021, by Pablo Fajgelbaum and Amit Khandelwal, concluded that “US consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the US and China, although not by large magnitudes relative to GDP.”
• A January 2022 study from the US Department of Agriculture estimated the direct export losses from the retaliatory tariffs totaled $27 billion from 2018 through the end of 2019.
• A May 2023 United States International Trade Commission report from Peter Herman and others found evidence for near complete pass-through of the steel, aluminum, and Chinese tariffs to US prices. It also found an estimated $2.8 billion production increase in industries protected by the steel and aluminum tariffs was met with a $3.4 billion production decrease in downstream industries affected by higher input prices.
• A January 2024 International Monetary Fund paper found that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product losses—for example, the study estimates reversing the 2018–2019 tariffs would increase US output by 4 percent over three years.
• A January 2024 study by David Autor and others concludes that the 2018–2019 tariffs failed to provide economic help to the heartland: import tariffs had “neither a sizable nor significant effect on US employment in regions with newly‐​protected sectors” and foreign retaliation “by contrast had clear negative employment impacts, particularly in agriculture.”

2018-2019 Trade War Timeline

The Trump administration imposed several rounds of tariffs on steel, aluminum, washing machines, solar panels, and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion. The Biden administration maintained most tariffs, except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension. In May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods for a tax increase of $3.6 billion.

Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation. Note the total revenue generated will be less than our static estimate because tariffs reduce the volume of imports and are subject to evasion and avoidance (which directly lowers tariff revenues) and they reduce real income (which lowers other tax revenues).

Section 232, Steel and Aluminum

In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. The value of imported steel totaled $29.4 billion, and the value of imported aluminum totaled $17.6 billion in 2018. Based on 2018 levels, the steel tariffs would have amounted to $9 billion and the aluminum tariffs to $1.8 billion. Several countries, however, have been excluded from the tariffs.

In early 2018, the US reached agreements to permanently exclude Australia from steel and aluminum tariffs, use quotas for steel imports from Brazil and South Korea, and use quotas for steel and aluminum imports from Argentina.

In May 2019, President Trump announced that the US was lifting tariffs on steel and aluminum from Canada and Mexico.

In 2020, President Trump expanded the scope of steel and aluminum tariffs to cover certain derivative products, totaling approximately $0.8 billion based on 2018 import levels.

In August 2020, President Trump announced that the US was reimposing tariffs on aluminum imports from Canada. The US imported approximately $2.5 billion worth of non-alloyed unwrought aluminum, resulting in a $0.25 billion tax increase. About a month later, the US eliminated the 10 percent tariff on Canadian aluminum that had just been reimposed.

In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will. TRQs for the European Union took effect on January 1, 2022; TRQs for Japantook effect on April 1, 2022; and TRQs for the UK took effect on June 1, 2022. Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some US businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.

Tariffs on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values. Current retaliation against Section 232 steel and aluminum tariffs targets more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion.

Section 301, Chinese Products

Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which culminated in a March 2018 report that found China was conducting unfair trade practices.

In March 2018, President Trump announced tariffs on up to $60 billion of imports from China. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. The first tariffs began July 6, 2018, on $34 billion worth of Chinese imports, while tariffs on the remaining $16 billion went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.

In September 2018, the Trump administration imposed another round of Section 301 tariffs—10 percent on $200 billion worth of goods from China, amounting to a $20 billion tax increase.

In May 2019, the 10 percent tariffs increased to 25 percent, amounting to a $30 billion increase. That increase had been scheduled to take effect beginning in January 2019, but was delayed.

In August 2019, the Trump administration announced plans to impose a 10 percent tariff on approximately $300 billion worth of additional Chinese goods beginning on September 1, 2019, but soon followed with an announcement of schedule changes and certain exemptions.

In August 2019, the Trump administration decided that 4a tariffs would be 15 percent rather than the previously announced 10 percent, a $5.6 billion tax increase.

In September 2019, the Trump administration imposed “List 4a,” a 15 percent tariff on $112 billion of imports, an $11 billion tax increase. They announced plans for tariffs on the remaining $160 billion to take effect on December 15, 2019.

In December 2019, the administration reached a “Phase One” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and to reduce the stage 4a tariffs from 15 percent to 7.5 percent in January 2020, reducing tariff revenues by $8.4 billion.

In May 2024, the Biden administration published its required statutory review of the Section 301 tariffs, deciding to retain them and impose higher rates on $18 billion worth of goods. The new tariff rates range from 25 to 100 percent on semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural raphite and other critical materials, medical goods, magnets, cranes, and solar cells. Some of the tariff increases go into effect immediately, while others are scheduled for 2025 or 2026. Based on 2023 import values, the increases will add $3.6 billion in new taxes.

Section 301 tariffs on China currently account for $77 billion of the $79 billion in tariffs, based on initial import values. China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of US goods, for an estimated tax of nearly $11.6 billion.

WTO Dispute, European Union

In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied on aircraft and 25 percent on agricultural and other products.

In summer 2021, the Biden administration reached an agreement to suspend the tariffs on the European Union for five years.

Section 201, Solar Panels and Washing Machines

In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.

In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired.

In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.

In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Additionally, the temporary two-year exemptions expired and the Biden administration is further investigating solar panel imports from the four Southeast Asian nations for additional tariffs.

We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities, while the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities.

We exclude the tariffs from our tariff totals given the broad exemptions and small magnitudes.

Trade Volumes Since Tariffs Were Imposed

Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs and still remain below their pre-trade war levels. Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries.

To read the full research article as it appears on the Tax Foundation website, click here.

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The deadline for submission of comments is March 11, 2025

Comments in response to this notice can be submitted or accessed here or, for alternatives to online submissions, please contact Catherine Gibson, Deputy Assistant USTR for Monitoring and Enforcement at 202.395.5725.

To view the Federal Register Notice, click here.

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President Donald Trump is right about reciprocity—a fair balance of tariff concessions among countries has long been integral to U.S. trade policy. But his administration seems confused about how it works in the real world. And his plans—such as they are known—for imposing reciprocal tariffs on a country-by-country basis would be an administrative nightmare.

The White House announced Thursday that it was directing the U.S. Trade Representative’s Office and the Department of Commerce to launch an investigation into tariff and other trade practices around the world to establish the new reciprocal U.S. tariff rates. “It’s time to be reciprocal,” Trump told reporters earlier this week. “You’ll be hearing that word a lot. Reciprocal. If they charge us, we charge them.” But perhaps recognizing the complexity, the White House is moving slowly; trade advisor Peter Navarro said the administration would first “look at all our trading partners, starting with the ones with which we run the biggest trade deficits.”

Reciprocity, to be clear, is a powerful idea. The American people would never have supported the gradual removal of tariffs and other barriers to freer trade without a belief that other countries were doing the same. The growing sense that others—especially big developing nations such as China and India—are not making similar commitments has certainly weakened U.S. public support for the global trading system. In the best possible outcome, Trump’s reciprocity initiative could open the door to negotiating long-overdue corrections to those discrepancies. But poorly enacted, it would blow up what remains of global trade rules and leave American companies crippled in their ability to compete in international markets.

Reciprocity has been the foundation of U.S. participation in global trade negotiations since the 1930s. In 1934—chastised in part by the disaster of the 1930 Smoot-Hawley tariff increases, when other countries raised their own tariffs to retaliate against the United States—Congress empowered President Franklin D. Roosevelt to negotiate “reciprocal” tariff reductions with other countries. The 1934 Reciprocal Trade Agreements Act (RTAA) led to the negotiation of nearly two dozen agreements over the next five years to lower U.S. and foreign tariffs, including with the two largest trading partners, Canada and Great Britain.

At the time, both Congress and the president recognized that negotiating specific tariffs on a country-by-country basis would be impossibly complex; overburdened Customs agents would have been forced to determine the national origins of every product entering the country in order to levy the proper tax on the U.S. importer. Instead, starting in 1923, and then legislated by Congress in the RTAA [PDF], the United States embraced what would become known as the “most-favored-nation” (MFN) principle, in which U.S. tariffs on imports would be identical for all countries, with occasional exceptions for goods deemed unfairly traded or for free trade partners.

Reciprocity and the MFN principle turned out to be world-changing ideas that over the following decades persuaded most countries to lower tariffs and participate fully in global trade. In the United States, as trade economist Richard Baldwin has argued, the idea of reciprocity turned the politics of trade on its head. U.S. companies that were competitive in global markets—and after World War II, the United States was the most competitive manufacturing economy in the world—recognized they could only win tariff reductions abroad if the United States was also prepared to cut its tariffs at home.

Baldwin calls this “the juggernaut effect.” In the post–World War II global trade negotiations under the General Agreement on Tariffs and Trade (GATT)—the forerunner of the World Trade Organization (WTO)—countries recognized that to win tariff cuts in overseas markets they would have to cut their own tariffs. Baldwin argues that the embrace of reciprocity “rearranged the politics of tariff cutting inside each nation in a way that made liberalization a self-sustaining cycle.” Big exporting companies like Boeing or Caterpillar knew that to open new markets abroad they would have to stand up to protectionist lobbies such as steel or textiles that favored higher U.S. tariffs to protect against low-priced imports.

That cycle is no longer self-sustaining. The Trump administration’s tariff approach calls for “raising” tariffs to the level of other countries on a product-by-product basis. The last time Congress raised tariffs in the name of reciprocity was the McKinley Tariff of 1890 [PDF], which hiked duties to an average rate of nearly 50 percent on many products from countries that had “unequal and unreasonable” tariffs on U.S. imports. The price increases that resulted from the tariffs, coupled with a downward spiral in farm prices, created major political backlash against the Republican proponents of the tariffs and was followed by a severe depression from 1893 to 1896.

This time, Trump is signaling he would go much further. To put it simply, the United States would charge the same tariffs on imports that it faces on its exports. A favorite target for Trump is the European Union’s 10 percent tariff on imported cars; the United States charges just a 2.5 percent import duty on cars (though a hefty 25 percent on the light trucks and sport utility vehicles most Americans prefer).

But U.S. officials told reporters Thursday that the White House is seeking a more ambitious approach in which the tariff rate would also take into account foreign-government subsidies, exchange-rate depreciations, and the export-promoting effects of value-added taxes like those used in Europe. Calculating reciprocal tariffs based on such a stew of inputs is more or less impossible, though U.S. officials will presumably make best-guess estimates. And if other countries retaliate on a similar basis, it could produce a global spiral of tariff increases.

The main U.S. targets are large developing countries such as China and India. Both countries had long closed their markets to imports, often maintaining tariffs exceeding 100 percent. When they joined the GATT and the WTO, they were recognized as developing countries and permitted to enjoy the benefits of tariff cuts across the world without making fully reciprocal cuts of their own.

With the growing wealth of China, India, and other large developing countries, that anomaly has become a much bigger problem. Last year, China ran a record trade surplus of nearly $1 trillion with the world, nearly a third of which ($295 billion) was with the United States alone, even though the United States has hiked its tariffs on China significantly under the Section 301 actions initiated in the first Trump administration. Other countries that maintain higher tariffs include Brazil and India, whose prime minister, Narendra Modi, visited the White House this week. As former U.S. trade negotiator Mark Linscott argues, the failure of reciprocity-focused tariff negotiations at the WTO, with a particular focus on those large developing economies, has allowed them to maintain unreasonably high tariffs.

The stalling of tariff cuts through WTO negotiations was one of the reasons many countries around the world upped their game in pursuing bilateral and regional free trade agreements as the vehicle for reciprocal tariff reductions. The European Union boasts of more than forty trade agreements with seventy countries spread across the globe, including agreements with the United States’ partners in the U.S.-Mexico-Canada Agreement (USMCA). In addition to USMCA, both Canada and Mexico are parties to free trade agreements with more than forty-eight countries, while even China and India have recently joined a number of regional or bilateral preferential arrangements. Globally, there are more than 370 regional or free trade agreements in force. However, since 2009, the United States has placed itself on the sidelines of such action, leaving its tariff arrangements with its trading partners largely frozen in time.

How Trump will achieve his desire for reciprocal tariffs remains murky. He has imposed, and then paused, 25 percent tariffs on Canada and Mexico, and imposed 10 percent tariffs on China, all using emergency powers. He plans to impose new 25 percent duties on steel and aluminum imports by doubling down on the national security investigation and findings under Section 232 of the Trade Expansion Act of 1962 that he used in his first term. But the legal basis for broad reciprocal tariffs is much harder to discern. All prior reciprocal tariffs have been imposed pursuant to negotiated agreements entered into under congressionally authorized processes, so achieving reciprocal tariffs this time around would seem to require congressional action. Some speculate Trump could dust off the old statute books to claim authority under Section 338, which grew out of Section 317 of the Tariff Act of 1922. Section 338 empowers the president to impose “new or additional duties” on imports from countries that discriminate against U.S. exports. But the authority has never been used in that way, and proving specific discrimination against American exports could prove challenging.

But the practical hurdles are perhaps bigger than the legal ones. If the tariffs are set to mirror precisely those charged by U.S. trading partners, it would mean that U.S. Customs and Border Protection would require different tariff schedules for each country—close to impossible for a short-staffed agency. Already, the Trump administration was forced to delay the immediate elimination of the de minimis exception for goods from China, which allows shipments of less than $800 to enter tariff-free under a truncated process, because Customs could not handle the volume of work associated with reviewing import documents and assessing duties on so many shipments.

Additionally, most companies and the Customs brokers that facilitate exports and imports do not pay much attention to the fine print of exactly where products are made, the so-called rules of origin. Rules of origin matter greatly for imports from free trade partners, for products covered by country-specific antidumping or countervailing duties, for goods coming from non-favored countries (such as Belarus, Cuba, North Korea, and Russia), and for preventing the import of products made with child or forced labor. But for all other shipments, there is no need to ensure rules of origin declarations are 100 percent correct, because it does not matter. Under the MFN rules, the tariffs are the same no matter where the goods were made.

It is also unclear whether the new U.S. tariffs will be calibrated to “bound” rates in other countries—which refers to the maximum tariff rate to which they have formally committed in the WTO—or to the actually applied rates. In developing countries especially, the actual rate charged is often well below their WTO obligation. If the goal is to match U.S. import tariffs to those charged on U.S. exports to a particular country, then the applied rates should be used, but those are frequently changed. Continuing to modify U.S. tariffs to keep up with those fluctuations could prove impossible.

Finally, raising U.S. tariffs in such a unilateral fashion would completely violate U.S. WTO obligations to keep tariffs within negotiated limits. That would put a stake through what remains of the WTO rules. Such wholesale violations would invite retaliation and discourage other countries from entering into a trade agreement with the United States, if the country will not keep up its end of the bargain.

Such developments would harm U.S. companies. Even those that could gain some small benefit from tariff protection would be overwhelmed by the complexity of importing under such a system. Many U.S. exports, especially dairy products, shoes, sugar, textiles, or tobacco, could be hit with higher tariffs if countries respond in kind by raising product-specific tariffs to U.S. levels. U.S. tariffs on sugar, for example, are much higher than in most other countries.

The lengthy investigation time directed by the president before any new tariffs would be imposed is encouraging. A serious effort to bring greater reciprocity into the trading system could benefit the United States. Other countries might reduce some tariffs unilaterally to head off U.S. actions. But a sudden, ill-thought-out initiative would leave American companies and consumers much worse off.

To read the article as it was published on the Council on Foreign Relations website, click here. 

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Since taking office on Jan. 20, 2025 President Trump has moved swiftly to impose or threaten to impose wide-ranging new tariffs on U.S. trading partners. A 10% tariff on all imports from China—additional to tariffs that were already in place on Chinese imports—took effect on Feb. 4. Tariffs of 25% on imports from Canada and Mexico were announced then forestalled for 30 days. These tariff actions were based on an unprecedented use of an existing law. The president also signed a proclamation raising tariffs on steel and aluminum and has indicated he may take additional tariff actions. The objectives of the tariffs appear to vary with each case. The administration is signaling that it intends to make trade policy an ongoing, high-profile part of its agenda, connected to overall economic policy. Decisions will impact businesses, farmers, consumers, the economy, and the trading system. Understanding them requires legal, economic, and diplomatic lenses – an approach that defines the Yeutter Institute. Our three faculty chairs in law, agricultural economics, and economics offer their perspectives below on the initial tariff actions of the new administration. 

KEY TAKEAWAYS 

• The legal basis for the new tariffs on China and the threatened tariffs on Canada and Mexico is a 1977 law called the International Emergency Economic Powers Act (IEEPA). This is the first time IEEPA has been used to impose tariffs.  
• Unlike other U.S. laws presidents have used to impose tariffs, under IEEPA, tariffs can be imposed virtually immediately with no investigation required in advance.  Any legal challenges are likely to face an uphill climb, as U.S. courts have traditionally given very wide latitude to Presidential actions under IEEPA. 
• The agriculture sector would experience a double whammy of lost competitiveness from U.S. tariffs and loss of export markets through trading partners’ retaliation. Products affected by trade retaliation would be pork, beef, corn and soybean products. For U.S. producers, finding new markets when retaliation makes their products less competitive takes time. 
• Because the United States imports crude oil from Canada and Mexico and refines it including in Colorado and Wyoming, tariffs on these imports would increase the cost of all refined fossil fuel products in the U.S. Our U.S. tariffs would also impact fertilizer prices, as the U.S. imports most of our potash from Canada.  
• The 10% minimum tariff on China significantly broadens the set of goods that face the trade tax, compared to the 2018 trade war in which the tariffs were much more targeted. This, combined with China’s retaliation on U.S. energy goods, motor vehicles, and agricultural equipment, will have a negative economic impact on the U.S. that is larger than the 2018 trade war.  The cost of the new broad-based tariffs for the U.S. economy is on the order of $30 to $100 billion. 

An unprecedented use of an existing law to impose new tariffs 

By Matthew Schaefer, Clayton Yeutter Chair and Professor of Law, Nebraska College of Law 

On February 1, 2025, President Trump signed three executive orders imposing additional tariffs on goods from Canada, Mexico and China. Tariffs, also referred to as customs duties, are taxes on imports.  U.S. importers are responsible for paying the tariff, although tariffs can negatively impact foreign exporters as U.S. importers look for alternative sources of supply or seek to renegotiate contracts for the purchase of goods from the foreign exporters. 

The executive orders call for a 25% additional tariff on imports from Canada (although just 10% for energy resources), a 25% additional tariff on imports from Mexico, and a 10% additional tariff on imports from China beginning just past midnight on February 4th.  Canadian and Mexican goods currently receive tariff free treatment into the United States as they have since the mid-1990s under the North American Free Trade Agreement (NAFTA) and its successor agreement the USMCA that entered into force in 2020.   

The additional tariff of 10% on Chinese imports will be added to the additional 25% or 7.5% tariffs imposed on two-thirds of imports from China since 2018 under Section 301 of the Trade Act of 1974 during the first Trump Administration and maintained by the Biden Administration.  Both of those tariff rates are added on top of the Normal Trade Relations (NTR) tariff rate for goods, although NRT tariffs tend to be quite low (3-4% on average). 

The legal basis for these new threatened tariffs is the International Emergency Economic Powers Act (IEEPA), enacted in 1977.  IEEPA provides presidential authority “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”  In his executive orders dealing with Canada and Mexico, President Trump declared a national emergency at those borders related to concerns over fentanyl and other drug trafficking, and with respect to Mexico’s border, illegal immigration. With respect to China, President Trump declared a national emergency resulting from sustained influx of synthetic opioids, including fentanyl, and the “failure of the PRC government to arrest, seize, detain, or otherwise intercept chemical precursor suppliers, money launderers, other TCOs, criminals at large, and drugs.” 

IEEPA empowers the President to “regulate … any … importation … of … any property in which any foreign country or a national thereof has any interest by any person … subject to the jurisdiction of the United States.”  This is the first time that IEEPA has been used for tariffs.  (However, President Nixon used the Trading With the Enemy Act (TWEA), a statute that IEEPA in part sought to limit and replace, to impose across the board tariffs in 1971 when the U.S. declared it would abandon the gold standard for the U.S. dollar). The use of IEEPA to impose tariffs for the first time is quite significant because other statutes delegating the power to the President to impose tariffs for national security reasons or to address unfair foreign trade practices have more procedural requirements and indeed require an investigation that takes time.  Under IEEPA, tariffs can be imposed virtually immediately with no investigation required in advance.  

More traditional trade remedy statutes such as Sec. 301 and Sec. 232 that were revitalized and used by the Trump Administration during President Trump’s first term operate differently. Section 301, meant to address unfair and unreasonable foreign trade practices, and Section 232, that addresses imports threatening to impair U.S. national security, require lengthy investigations prior to taking tariff actions. If the IEEPA-based tariffs are imposed, it is likely that there will be legal challenges brought in U.S. courts.   

U.S. courts have traditionally given very wide latitude to Presidential actions under IEEPA and any such challengers will face an uphill climb, even with new Supreme Court jurisprudence giving less latitude to executive branch actions based on congressional delegations of power.  President Nixon’s TWEA tariffs survived a court challenge in the early 1970s with the court finding the power to “regulate” included power to tariff, although critics point out IEEPA’s long list of delegated powers does not include explicitly the power to “tariff” or “tax,” and no prior President used IEEPA for imposing tariffs. 

China has filed a World Trade Organization (WTO) dispute settlement case against the United States based on the IEEPA tariffs.  However, ever since the WTO Appellate Body collapsed in December 2019, the United States has maintained the ability to appeal any first-level WTO panel report “into the void,” thereby preventing its adoption by the WTO dispute settlement body and thus preventing the ruling from becoming binding.  A USMCA challenge by Canada and Mexico if the tariffs are imposed later is likely too. 

Importantly, both the WTO agreements and the USMCA contain so-called national security or “essential security” exceptions, and the USMCA exception is less qualified than the WTO exception. The USMCA’s “essential security” exception appears to be completely self-judging and does not contain some of the limiting language that one finds in WTO agreements’ national security exceptions.  The U.S. believes even the WTO national security exception is entirely self-judging, even though WTO panels have found some small, outer bound limits.  The wording of the USMCA’s “essential security” exception indicates even more strongly that the exception is entirely self-judging: “Nothing in this Agreement shall be construed to … preclude a Party from applying measures that it considers necessary for … the protection of its own essential security interests.” 

On social media, President Trump also cited trade deficits with the three countries as a reason for imposing tariffs: “…The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we’re not going to be the “Stupid Country” any longer. MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS!”  Most economists believe any focus on bilateral trade deficits, and certainly with Canada and Mexico, makes little sense given the economic integration between the three countries that makes North American goods globally competitive. 

The leaders of both Mexico and Canada reached deals with President Trump on February 3, 2025 to suspend these tariff actions for 30 days with steps to address border issues and fentanyl.  Mexico’s President agreed to send 10,000 troops to the border that will be specifically dedicated to stopping the flow of fentanyl and illegal immigration.  Canada also agreed to dedicate an additional 10,000 troops to the Northern border as well as help form a Canada-U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering.  Canadian Prime Minister Trudeau also signed a new intelligence directive on organized crime and fentanyl, backing it with $200 million.   

The China tariffs were in fact imposed as of February 4, 2025.  China was not able to obtain any last hour reprieve from additional tariffs on its products being imported into the United States, although it is expected that President Trump will be speaking with China President Xi in the near future.  As promised, China has taken retaliatory measures against the United States. China is imposing a 15% tariff on U.S. coal and liquefied natural gas and a 10% tariff on U.S. crude oil, agricultural machinery, and certain automobiles and trucks.  It is also imposing new export controls on two dozen metal products, including tungsten that has many industrial and defense product applications, and tellurium that is used in the production of solar cells. 

President Trump also repealed the so-called de minimis exception, that exempts shipments valued under $800 from tariffs, for all Chinese imports.  Chinese exports of low-value packages to the United States rapidly rose from roughly $5 billion in 2018 to $66 billion in 2023. However, the President put a temporary pause on the repeal after realizing that both U.S. Customs and Border Protection and the U.S. Postal Service would need time to implement tariffs on so many small value shipments. 

Prior to its last hour reprieve from the imposition of tariffs, Canada had threatened to impose 25% tariffs on $30 billion worth of U.S. imports immediately and an additional $125 billion worth of U.S. imports 30 days later.  Several Canadian provinces also threatened to take U.S. alcoholic beverages off shelves of government-run liquor stores, and Ontario even threatened to terminate government contracts with certain U.S. companies, such as Elon Musk’s Starlink.  Mexico also threatened an unknown level of retaliation.  

On February 11, President Trump signed a proclamation raising Sec. 232 national security-related tariffs on aluminum from 10% to 25% and restoring the full 25% tariff on steel even for steel imports from countries that had previously negotiated exemptions from the tariffs in exchange for limiting exports to the United States. This list of countries includes Argentina, Australia, Brazil, Canada, Japan, Mexico, South Korea, the European Union, Ukraine, and the United Kingdom.  Canada and Mexico are the two largest sources of steel imports into the United States, although the main aim of the tariffs is to counteract the overcapacity in these industries created by China’s large subsidization of these industries. 

The Stakes for Nebraska Agriculture and Beyond 

By John Beghin, Mike Yanney Yeutter Institute Chair and Professor of Agricultural Economics, University of Nebraska-Lincoln 

If implemented, all three tariff actions described in the Feb. 1 executive order on Canada, Mexico, and China would impact Nebraska’s economy. Farm income would decrease as Nebraska produces large surpluses of key commodities and depends on export markets, principally, Mexico, Canada, and China. If these countries retaliate with their own tariffs, Nebraska exports are compromised and new markets have to be found, which takes time.  

When the U.S. agricultural economy is hit with retaliatory tariffs, foreign competitors can move quickly to take advantage of their new, more competitive position in export markets. For crops with inventory, the response is instantaneous especially with competitive tenders for which U.S. crops would be disqualified by the foreign (significant) tariff. Even with tight inventory, competition is there in tenders and price effects will be more pronounced. There is also a longer-term supply response once foreign acreage gets allocated to grow these crops, like the expansion of Brazilian acreage for soybeans. That does not go away even after the retaliatory tariffs are removed.  

Some countries and firms diversify their sourcing/procurement by allocating purchases to different countries to avoid “getting burned” by any specific trade partner (Japan did that). In these cases, the U.S. may preserve some of these export markets but one could expect to see them reduce purchases because the U.S. price inclusive of the tariff is higher than competitors and substitutes exist. 

For U.S. producers, finding new markets when retaliation makes their products less competitive takes time. They can submit bids to tenders in countries that did not retaliate. They would need to identify transportation to these new markets (tenders are for both the commodity and its transportation). It would take time to find reliable and economical transportation to be competitive (for example Cargill often loses wheat markets to Ukrainian suppliers because they cannot find transportation that is as cheap as Ukrainians can find). In addition, establishing long-term trusted relationships when tenders are not involved can take time. For meat markets it may be more complicated because of plant and animal health and food safety requirements to fulfill in these new markets. That takes time too. 

Products affected by trade retaliation would be, pork, beef, corn and soybean products. Our U.S. tariffs impact the cost of fossil-fuel based products and fertilizer prices (the U.S. imports most of our potash from Canada). Hence, the cost of production in farming would increase and competitiveness would decrease. According to the Nebraska Farm Bureau, in recent years 95% of Nebraska’s corn exports, 90% of soybean exports, 57% of soybean meal exports, 32% of pork exports, and 23% of beef exports went to these three countries. Hence agriculture would experience a double whammy of lost competitiveness from our own tariffs, and loss of markets through retaliation. 

The United States imports crude oil from Canada and Mexico and refines it including in Colorado and Wyoming. Tariffs on these imports would increase the cost of all refined fossil fuel products in the U.S.There may be a small benefit to U.S. frackers who are likely to see a higher local price. However, overall the energy sector would lose from the tariffs because of higher costs. Refined energy products (such as gasoline) prices would increase, and consumers would react by decreasing their gasoline consumption. Retaliation would hurt U.S. exports of fossil energy products to the three countries (about $26 billion of crude petroleum, $48 billion of refined petroleum, and about $16 billion of petroleum gas (as per the Council of Foreign Relations). Hence again a double whammy of lost competitiveness from our own tariff, and loss of markets through retaliations.  

Nebraska manufacturing would be affected as well as it imports metallic products to be transformed into agriculture-related equipment which is typically re-exported. The building industry would be affected as well with a 25% increase in the price of imported lumber and other imported material. The U.S imports about 80% of its lumber use. Transportation cost in all sectors would also be affected with cost increase with higher energy prices. 

Nationally, these impacts would be generalized to most sectors, especially the car industry, which is among the most integrated in the U.S.-Mexico-Canada region. The state-level impact would depend on the sectoral composition of the state, and its dependence on the three countries for its imported inputs and destination markets for  products. 

Consumers in Nebraska and beyond would be facing higher prices for food items, namely fruits and vegetables, which we import from our neighbors. Food is characterized by two-way trade as we export and import a large amount of agricultural and food products. (In fiscal year 2024, the U.S. imported over $206 billion worth of food and agricultural products and exported over $174 billion in this sector, according to the U.S. Department of Agriculture). Food sectors are highly integrated in North America under the U.S.-Mexico-Canada trade agreement (USMCA). Many products would be affected, and supply chains would scramble to find cheaper alternatives. Consumers would face higher gasoline prices, higher car prices, and more expensive building costs in real estate. As the U.S. imports many finished consumer products from China, your regular trip to Hobby-Lobby would be more expensive! The magnitude of the price increase would be smaller than the tariffs since value is added beyond the border once goods enter the country. The more value that is added, the less the impact of the tariff on the final price. In terms of the immediacy of the price impact, perishable products for which substitutes are few would typically experience the price increase the fastest. Products for which inventories are large and which are not perishable goods would see slower price changes. 

Finally, there would be a loss of income for the many industries negatively affected by the trade war translating into lost consumer income. The loss of jobs would be moderate (estimates are around 100,000 to 150,000 jobs). It is moderate relative to the vast churning of the U.S. labor market (of the same scale as our monthly labor market changes).  

New China Tariffs Have Greater Impact than the Whole of the 2018 Trade War 

By Edward Balistreri, Duane Acklie Yeutter Institute Chair and Professor of Economics, University of Nebraska-Lincoln 

On February 4, the United States started imposing additional broad based 10% tariffs against China. While not as dramatic as the proposed Canadian and Mexican tariffs (which were postponed in a last-minute reprieve), the China tariffs are likely to have a significant impact on the US economy.  In fact, the 10% additional tariff on all goods from China is likely to have a larger overall impact on U.S. welfare than the whole of the 2018 trade war.   

The 10% additional tariff covers a significant group of goods which were spared in the 2018 trade war.  Furthermore, the 10% additional tariff on goods that do already have substantial tariffs has a compounding effect on economic distortions. Our quantitative models suggest that the 10% minimum tariff on China combined with China’s retaliation on U.S. energy goods, motor vehicles, and agricultural equipment will have a negative economic impact on the U.S. that is larger than the 2018 trade war.  The cost of the new broad-based tariffs for the U.S. economy is on the order of $30 to $100 billion, which is larger than our estimate that the 2018 trade war cost the U.S. between $17 and $80 billion. The large range in estimates depends on the quantitative model structure with the low estimates dependent on perfect competition and the larger estimates accommodating a more advanced model of imperfect competition.        

A feature of the 2018 trade war was that U.S. tariffs on Chinese goods were targeted.  Electronic equipment is the most important sector of U.S. imports from China, but the tariffs on this sector were relatively modest.  In data collected for 2017, prior to the trade war, the U.S. imported roughly $200 billion of electronic equipment from China.  Yet many electronic goods had low, or no, new tariffs imposed (e.g., iPhones) as the 2018 trade war developed.  Overall, the average tariff rate across the electronic equipment sector increased to 8.6%.  Adding an additional 10% brings the tariff rate up to 18.6%.  In contrast, targeted sectors like iron and steel saw U.S. tariffs on imports of over 22%. The indiscriminate addition of 10% tariffs on all Chinese goods significantly broadens the set of goods that face the trade tax.   

Economic models of trade indicate a compounding, or non-linear, effect of trade distortions.  Consider a sector like non-ferrous metals (e.g., aluminum, copper, zinc, lead).  As a part of the 2018 trade war the average U.S. tariff on these goods from China went from 8% to 18%.  This represents a significant market distortion as U.S. firms pay higher prices for these inputs and increase their demand for higher cost substitutes from non-Chinese sources.  The effect of adding an additional 10%, bringing the tariff rate up to 28%, is larger than the original 10% tariff increase.  The compounding effect represents a tradeoff between the distortionary effect of the tariff on domestic and international prices balanced with the tariff revenue.   

A small tariff has a relatively small distortionary effect on markets. The incidence of the collected tariff revenue is shared, however, among U.S. and Chinese agents. This is because Chinese export prices fall and gross-of-tariff U.S. import prices rise.  Initially, the small U.S. tariff can benefit the U.S. as the transfer of tariff incidence on China (through lower export prices) outweighs its distortionary effect.  This is the classic case of a beggar-thy-neighbor tariff.  As the tariff becomes large, however, the distortionary effect dominates, and U.S. welfare falls.  One can deduce this by imagining the growth of the tariff rate to a large prohibitive tariff on Chinese goods.  The prohibitive tariff generates (large) distortionary losses for the U.S. while offering no tariff revenue.  With no tariff revenue there is no transfer of the U.S. tax incidence on the Chinese—no beggar-thy-neighbor transfer.  Our empirical analysis of the actual 2018 U.S. tariffs on China indicate that these tariffs are not “small” in the sense that their distortionary effect dominates the revenue transfer.  The February 4^th 10% additional tariffs move us further into this range of large welfare-reducing tariffs.  Furthermore, China’s retaliation always works to reinforce the distortionary costs while reducing the revenue transfer to the U.S.  This increases the burden of the trade war on the U.S.      

The newly implemented broad-based additional tariff on Chinese goods of 10% may seem a modest escalation relative to the postponed high tariffs on Mexico and Canada and the campaign threats of massive tariffs on China.  Our analysis indicates that these new Chinese tariffs need to be taken seriously.  Their overall estimated cost for the U.S. is at least as big as the costs associated with the 2018 tariffs.  Our quantitative models suggest that the costs of the new tariffs are between $30 and $100 billion for the U.S.  The worry is that these tariffs are only the first salvo in a new trade war that threatens to spill beyond the U.S. and China.  In a recent paper with Christine McDaniel, we find that the costs might go up by 10-fold under a retaliatory trade war consistent with Trump’s campaign rhetoric of 60% minimum tariffs on China and 10% minimum tariffs on the rest of the world.

To read the full Special Report as it appears on the Yeutter Institute at University of Nebraska-Lincoln website, click here.

To read the full Special Report as a PDF, click here.

The post Understanding Trump’s New Tariffs: Legal, Economic and Agricultural Perspectives appeared first on WITA.

Just a week before the inauguration, in the real world of 2025, what will actually happen — to borrow from lyrics from a slightly later era — still ain’t exactly clear. Mr. Trump has proposed at least five different policies, mostly incompatible. One is an overall 10% or 20% tariff — the most Hoover-like option, with tariffs as much as ten times their current rate. Another is the imposition of tariffs on particular countries as tools for particular issues such as migration, and a third is stopping trade with China, Canada, and Mexico in particular. Last year’s Republican platform added a “Rube Goldberg”-style scheme in which each U.S. tariff line is equal to or higher than every analogous tariff line in every other country, and the tariff schedule balloons out to millions of lines; another option is traditional, Hoover-era tariff legislation. The most recent, via press trial balloons, is tariffs on products administration officials decide are especially sensitive. 

Tariffs are occasionally necessary, of course. Governments can use them appropriately to give industries struggling with import surges or subsidized competition space to recover (as the Biden administration did last year with respect to Chinese-produced electric vehicles), or to isolate aggressor governments as with the punitive tariffs imposed on Russia in 2022. But they always raise costs — a strange choice for Mr. Trump to make, after the advantages his campaign drew from the inflation burst of 2021-2023 — and, in general, tend to lower living standards and erode industrial competitiveness. Depending on the way the incoming administration tries to impose them, they can also harm the separation of powers and the Constitution. And looking ahead, the Biden administration’s experience demonstrates the error of trying to answer by blurring differences or proposing “lite” versions of the same thing.

This doesn’t mean critics need a very detailed response now. That isn’t necessary until the administration program becomes clear. But they do need to lay the intellectual foundation for it soon. Here, then, are four principles, meant to bridge the Constitutional, economic, strategic, and political issues the various Trump proposals raise: 

• Defend the Constitution and oppose attempts to rule by decrees.
• Connect tariff policy, both as taxation and trade policy, to growth, work, prices and family budgets, and living standards.
• Stand by America’s neighbors and allies.
• Offer a positive alternative.

I. MOVING BEYOND BIDENOMICS

In applying these principles, there’s no need for Democrats — or liberals in general, or others concerned about living standards, competitiveness, and America’s place in the world — to feel bound by Bidenomics. To the contrary, a new agenda needs some clear breaks with it.

President Biden’s program had some very positive results: low unemployment, steady growth, and faster decarbonization. Its “industrial strategy” programs, if expensive, do seem to have strengthened the semiconductor industry and might still prove durable ways to reduce emissions in automobiles and power plants. The Biden team also leaves some useful trade policy starting points:  Commerce Secretary Raimondo’s innovative export promotion programs, Secretary Yellen’s Treasury concept of “friendshoring” as a way to ensure diverse sourcing and pool allied strengths in a more dangerous world, and Vice President Harris’s campaign summary of a broad tariff increase as fundamentally a tax increase on working families all make sense.

But Bidenomics also had failures and missed opportunities, and ended as a political liability. The White House badly oversold its “industrial strategy” as something that could create a much larger manufacturing sector, as opposed to the very important but less cosmic semiconductor and emissions-reduction plans. (Manufacturing, at 10.9% of GDP before Mr. Trump’s initial round of tariffs in 2018/19, fell to 10.3% by 2021. Its share now, industrial strategy or not, is 10.0%.) In trade policy as in some other areas, Bidenomics missed an opportunity to cut prices for families — obviously, the working-class public’s single largest concern last year — and make sure the first Trump administration bore its appropriate share of blame for inflation, by leaving the 2018/19 tariffs largely untouched and declaring the permanent tariff system untouchable. It stranded the U.S.’ $3 trillion export sector by giving up on lowering foreign trade barriers and promoting digital trade. Most important, as we warned nearly two years ago, its concession of tariff issues to Trump without a fight in 2021-2023 proved a grave political weakness in 2024, leaving Vice President Harris’ valiant campaign without a positive alternative to Trump’s tariff increases.

II. FOUR PRINCIPLES

The coming years require something else. What might it be? Trumpism will be better defined within a few months. Within a few years, any of its various proposals will likely create new problems (or recreate old ones) that require solutions we cannot now define. So, for now, a detailed response would be premature. But as a point of departure, here are four principles meant as a foundation for critiques of Trumpism and the development of alternatives:

1. Defend the Constitution. First, prevent breaches of the separation of powers, and insist that Congress consider any change in tariff policy in a Constitutionally appropriate way. The Constitution’s Article I, Section 8, gives Congress unambiguous authority over “Taxes, Duties, Imposts, and Excises,” and for good reason. No single individual, president or not, should have the power to create his or her own tax system out of nothing. That, at minimum, risks impulsive and ill-considered decisions. Even more seriously, it creates a standing temptation for all future presidents to use tariffs to reward personal friends and supporters, and likewise to punish critics, business rivals, and disaffected states.  

As a legal matter, Congress has passed a number of laws “delegating” tariff policymaking to presidents in certain situations. Some seem Constitutionally sensible and convenient. Others, such as the International Emergency Economic Powers Act and sections 301 and 232 of U.S. trade law, give presidents too much unchecked power. But even in these cases, no law is meant to allow a president to create his own tariff system. Whether or not courts find such a step “unconstitutional,” given precedent from case law and Congressional drafting errors, as an obvious breach of an unambiguous Congressional power, it would certainly be “anti-Constitutional.” Congress should oppose the perversion of any current law for this purpose, insist that no general tariff increase ever occur absent a formal vote, and reject any attempt to impose tariffs by decree.

2. Connect trade and tariff policies to American living standards, work, and growth. Second, define tariff policy correctly as tax and trade policy, and analyze its effects on the basis of its impact on working family living standards, business competitiveness, and growth.

As Laura Duffy explained in her PPI paper last fall, tariffs are a poor form of taxation, distinguished from broader income or consumption taxes for narrow base and high rates, and for opacity, regressivity, and inequity. They are opaque because they are hidden from the consumers who bear their costs — one reason PPI and other polling tend to find tariffs a low-priority issue (pro or con) among working-class families. They are regressive because, in their role as a form of sales tax, they tax only goods, and less affluent families spend twice as much of their income on goods — clothes, shoes, cars, toothbrushes, Band-Aids, food, rugs, TVs, chairs — as rich families. Even today, tariffs account for a quarter of the cost of cheap shoes, and add 10% to the price of mass-market stainless steel forks and spoons. Adding another 10% or 20% tariff, or whatever the actual Trump administration policy turns out to be, to this adds immediately to their cash-register prices. A tariff increase, therefore, presages not only higher prices in the abstract — but higher prices mostly on things important to hourly-wage families. (And remember the Trump platform’s top single promise last year: “restore price stability, and quickly bring down prices”). And they are inequitable for businesses as well as families, since they tax goods-using industries — manufacturers, farmers, building contractors, retail outlets, restaurants — but not services- and investment-intensive sectors like financial services or real estate.

In trade policy, tariffs do have legitimate policy roles — for example, as part of a program to isolate aggressor governments (as with the removal of Russia’s MFN status in 2022), or giving temporary support to industries facing import surges or competitive troubles, and needing some space to upgrade. But policymakers should reserve tariffs for these kinds of unusual circumstances. The better trade policy approach is to build the export sector — a $3 trillion part of the U.S. economy, leading the world in farming, energy, and services exports, and second in the world for manufacturing — and find ways to promote it. Exporters pay high wages and earn a fifth of all U.S. farm income; they are disproportionately successful manufacturers, lead the world in cutting-edge innovation from digital technology to biotech, and range from world-famous medicine and aerospace firms to small chocolatiers and specialized musical-instrument makers. All are easy targets for the foreign governments who will retaliate against U.S. tariff hikes and breach of agreements. These are national assets, and policy should encourage their success, rather than turning them into trade war cannon fodder.

3. Stand by America’s allies and neighbors: Third, protect and build, rather than disrupt and erode, America’s strategic relationships with allies and neighbors. The U.S. is rare among historic world powers to have both long-term alliances with most of the world’s advanced economies, and deep and friendly ties with its immediate neighbors. These are strategic assets built over decades and core elements of any serious economic or national security strategy for the next decades. 

So it is especially disturbing to see Mr. Trump use his free time in these transition months to pick fights, including through tariff threats, with neighbors and allies from Canada and Denmark to Mexico and Panama. Economics apart, these countries have often stood with the U.S. when it counted a lot. Remember, for example, that Denmark, with its 6 million people and 21,000 military personnel, lost 43 soldiers not so long ago in Iraq and Afghanistan. Canada lost 158. Neither deserves repayment with bullying and economic threats. Certainly, difficult policy issues and disputes turn up at times in alliance and big-neighbor relationships — military spending, export controls, border issues, narcotics control — are all important topics on which the U.S. has legitimate interests, and sometimes disagreements. But to think you can solve any of them more easily by alienating the relevant governments and publics is arrogant. And to forget the very large value we draw from mutually beneficial trade, technological partnerships, and cross-border investment with allies and neighbors is self-destructive folly. Democrats should stand by our alliances and good-neighbor relationships as major national strengths, even if the incoming administration hasn’t yet learned their value.

4. Provide a positive, reformist, alternative: Fourth, define the outlines of a better trade approach. Though a very detailed program is premature, three lines of policy can form a basic vision that offers both household and national benefit:

• International engagement: Pool strengths and deepen ties with neighbors and allies through updated, reciprocal trade agreements. Trade negotiations and agreements can help both find non-inflationary sources of growth by expanding markets for America’s exporting factories, farmers, energy, and services industries, and diversity and secure supply chains by deepening relationships with neighbors and allies. This can include U.S.-Europe agreements with the United Kingdom as an immediate choice, a return to the 15-country Trans-Pacific Partnership — now functioning very well as the “CPTPP” for Japan, Australia, and other allies, including the U.K. — and using the 2026 “review” of the “USMCA” to broaden it to Caribbean, Central, and South American countries. The content of such agreements would change in some ways from the FTAs negotiated in the 2000s — probably, for example, through coordination of export control policies vis-à-vis authoritarian countries, joint approaches to Chinese over-capacity, and subsidies in some industries, energy and LNG supply to Europe and Asia, secure access to and joint development of critical minerals and other essential industrial inputs, and other matters — but would remain in the internationalist strategic tradition.
• Domestic reform: Lower costs for families and industry. Balancing this outward-looking, optimistic approach to negotiations, move on from defending Constitutional government to restoring it, and from opposing regressive tariff hikes to developing a new approach that makes trade policy fairer and cuts costs for families. At a more personal level, Congress can ease the cost of living by reforming the permanent tariff system, stripping regressivity and sexism out of the clothing, silverware, shoe, and other consumer goods schedules — where hundreds of lines simply raise the prices of cheap mass-market goods not made in the U.S. for decades, and the higher rates imposed on women’s clothes as opposed to men’s extracts $2.5 billion from women each year — and making the functioning of this system transparent. Here the starting point is the Pink Tariffs Study Act introduced last spring by Representatives Lizzie Fletcher and Brittany Pettersen. 
• Protect the Constitution: Finally, ensure Constitutionally appropriate policymaking by safeguarding Congress’ control over tariff rates.  Here, the starting point is the Prevent Tariff Abuse bill introduced by Representatives Suzanne DelBene and Don Beyer, which bars the use of tariffs through the International Emergency Economic Powers Act.

CONCLUSION

These are of course starting points and principles meant as guidelines for a period of uncertainty and flux. They identify areas in which policymaking needs to be strengthened and guarded against abuse, new threats and destructive ideas to oppose, and lines of policy that can help families stretch their budgets, strengthen U.S. industries, and safeguard America’s place in the world.

In trade as in some other matters, the Trump administration is taking office next week with a variety of incompatible promises, threats, Hooverist rhetoric, and eccentric references to the late President William McKinley. This means the next years may create new challenges that analysts can intelligently guess at but can’t predict with real precision, and a detailed response will have to. But though even a week before the inauguration, its program ain’t exactly clear, two things do seem certain:

One, Mr. Trump’s tariff threats — whichever among them proves to be the “real” policy — are bad ideas. All of them, though in different ways, would leave Americans with lower living standards, higher-cost and less competitive businesses, and eroded national security.

Two, critics of these threats should not repeat the Biden administration’s attempts to blur differences with Trumpism and propose softer versions of it. Instead, they need a forthright critique and an alternative that can deliver the opposite of Trumpism: a lower cost of living, more competitive agriculture and industries, and a stronger position in a more dangerous world.

To read the publication as it was published on the Progressive Policy Institute website, click here.

To read the full publication PDF, click here.

The post Tariffs and Economic Isolationism: Four Principles for a Response appeared first on WITA.

The next “episode” of the Trump Tariffs saga is likely to affect various businesses, with some critical sectors such as steel, aluminium and automotive facing particular challenges. In general, the trade agenda pursued by Donald Trump will represent another step back from the principles of barrierless, cooperative and predictable global trade. Globally operating businesses will need to prepare for further cost increases and supply chain disruptions.

Key takeaways

• President-elect Trump’s threats to impose tariff hikes should be taken seriously. He is likely to face little (legal) obstacles to impose far-reaching tariffs with significant impacts on global markets.
• The planned tariff agenda will have significant implications for the majority of globally operating businesses, with particular impact on those in the automotive, pharmaceuticals, steel and aluminium sectors.
• The introduction of the proposed tariff increases is likely to result in significant disruptions to global trade, creating a volatile environment for the private sector.
• Businesses should prepare to reassess their risk exposure to the planned tariff agenda. In general, businesses operating on a global scale, particularly those that rely heavily on imported materials or on the United States as a major sales market, will need to keep a close eye on developments over the coming weeks and months in order to address the potential impact on their market access conditions and to identify any possible supply chain disruptions.

What measures are planned and who will likely be most affected?

Donald Trump’s tariff agenda during his second term will most likely build on the measures implemented during his first term and, to a large extent, maintained under the Biden administration.

Recap: Trump Tariffs Episode I

During Donald Trump’s first term tariffs have already been a central element of his trade policy. The introduction of tariffs was presented as a retaliation measure against unfair trade tactics and a way to boost the domestic economy and to reduce the U.S. trade deficit. Also, President Trump saw tariffs as a viable method of exerting pressure on competitors or influencing the policies of other countries.

To achieve this aim, the Trump administration has imposed a series of tariffs on imports of solar panels, washing machines (30-50%), steel (25%) and aluminium (10%) from various countries (including the EU), as well as on most goods from China (affecting more than USD 380 billion worth of trade at the time). The Biden administration has maintained most of the measures against China but has lifted or eased certain tariffs on imports from other countries. For example, it replaced tariffs on steel and aluminium with tariff-rate quotas on imports from the EU, the UK and Japan. With regards to China, however, the Biden administration even imposed additional tariffs on Chinese goods, especially for electric vehicles (“EVs”) (100%), batteries (25%) and semiconductors (50%).

In summary, while the situation has eased for some regions and sectors under the Biden administration, operators with global businesses and supply chains are still experiencing adverse effects, especially due to the existing high U.S. tariffs on Chinese imports. The situation could deteriorate further with an escalation under a second Trump administration.

What measures are to be expected from Trump Tariffs Episode II?

During his campaign, Donald Trump announced that it would swiftly impose a wide range of cross-sector tariffs, including:

• Universal tariffs (10%) on imports from all countries
• Retaliatory tariffs; i.e. “Relief from Unfair Trade Practices” (up to 60% on Chinese imports)
• Reciprocal tariffs (based on the tariff rate difference between the United States and its counterpart)
• Specific sectors tariffs (especially vehicles; concrete threats were directed at the Mexican automotive industry)
• Specifically targeted countries (e.g. 25% on all imports from Canada and Mexico or 100% on BRICS countries)

It remains unclear to which extent these threats will actually be implemented and how much will be used as a negotiating tactic. However, as President-elect Trump, who has tellingly described himself as the “tariff man” takes office, there is no reason to believe that he will back down on most of his plans. The tariff agenda was a central element of his election campaign and is regarded as a crucial factor in achieving victory in the swing states. It is therefore to be anticipated that tariffs will remain a pivotal policy to pursue U.S. economic interests and put pressure on competitors.

In this light, harsh tariff hikes are particularly likely against China, which the previous Trump administration’s National Security Strategy identified as a “strategic competitor”. The severity of the tariffs will be contingent on various factors, including the influence of advisors. For instance, Elon Musk, who is anticipated to play a pivotal role in Trump’s cabinet and exert influence on the president’s broader political strategy, could be significantly impacted by high tariffs on Chinese goods, due to his deep business ties with China, especially with respect to Tesla.

However, given the United States being one of its largest export market, also the EU and the UK, as traditional “allies” of the United States, will have to prepare for higher tariffs and trade restrictions, as former Trump administration official, Kelly Ann Shaw only recently warned.

This does not mean that the new Trump administration will not also use tariff threats as a means of economic coercion. Rather, in addition to implementing tariffs in order to boost the domestic economy, the Trump administration is also likely to leverage the threat of high tariffs as a bargaining tool to pressure competitors into negotiations on existing or new free trade agreements with more favourable market access terms for the United States. This has already been done during his first term, for example with regard to the United States–Mexico–Canada Agreement (“USMCA”). Furthermore, Trump is likely to not only use tariffs as a means of exerting pressure to secure greater market access, but also employ them as a coercive tactic on a broader range of political issues. Concerning the threat of imposing tariffs of 25% on all goods from Mexico and Canada, Trump has already announced that these measures will be specifically targeted at stopping “illegal migration and drug trafficking”. Similarly, in relation to the threats to the BRICS countries, Trump has indicated his intention to implement tariffs if they weaken the dollar, by creating an alternative currency to the dollar for international trade. In relation to the EU, Trump has only recently linked the imposition of tariffs to a demand that the EU commit to the purchase of “large scale” amounts of oil and gas.

Which sectors will be affected the most?

President-elect Trump’s far-reaching tariff-agenda, if implemented, will have a significant impact on almost all globally operating business sectors. However, some sectors are particularly vulnerable to increasing costs due to the threatened tariff hikes.

• Automotive: Donald Trump’s proposed tariffs (whether universal or car-specific) are expected to cause significant impact on the automotive industry, particularly given the United States’ status as the major market for imported passenger vehicles (with an import value of USD 203.6 billion in 2023). The potential decline in U.S. demand due to rising prices is expected to put even more pressure on the automotive sector which is already under financial stress from developing EVs and competition from Chinese manufacturers. German and Mexican car exports to the United States are predicted to be particularly affected, as the United States is their largest import market. In the event Trump follows through on his threat of imposing significantly increased tariffs on Mexican car imports, this will also have knock-on effects on other major car brands with substantial manufacturing operations in Mexico. In general, disruptions in supply chains and investment plans are being expected, potentially leading companies to increase U.S. production or pass costs to consumers.
• Electric Vehicles: EVs exported from the EU may face additional hurdles to those faced by the wider automotive sector. The Trump administration could revoke the relief for EU exports under the U.S. Inflation Reduction Act (“IRA”), making it harder for European EVs to qualify for support measures, as a significant segment of the vehicles would not be eligible under the original IRA rules.
• Pharmaceutical Products: Pharmaceuticals are on second rank of the most imported good by the U.S. (with an import value of USD 203.2 billion in 2023). The immediate impact of new U.S. tariffs on the pharmaceutical industry is likely to be minimal due to its critical nature and inelastic demand. However, over time, these tariffs and more favourable U.S. regulations could shift investment and production to the United States, especially for highly exporting countries and regions in that sector, such as the EU and UK.
• Steel, Aluminium and other Chemicals: Although smaller in total numbers, the steel and aluminium industry is also expected to be affected by the tariff agenda. Under the Biden administration, the EU and the United States reached an agreement to lift most restrictions on aluminium and steel and replace it with tariff-rate quotas; the new Trump administration could revoke these reliefs. Furthermore, the expected tariff hikes against China, the world’s largest producer of steel, are feared to result in a surge of Chinese steel products in other markets. This could result in protective measures being taken by affected markets, which would in turn cause supply chain disruptions and increase costs for those business operators who rely on Chinese steel products. Exporters of chemicals will also be affected. For example, within the EU, the United States is the major market for chemicals (with an import value of EUR 139 billion in 2023).
• Fishery: In some regions, particularly the U.K., the fishing industry is predicted to be harshly affected, given that a high share of UK exports of fish products goes to the U.S. Studies fear an export volume decline by 22% in this sector.
• Electronics/ Semiconductors: The U.S. is also a major market for electronics and semiconductors. The import value of electrical equipment (including computers) and semiconductors made up 257.9 billion USD in 2023. Furthermore, President Trump has threatened to introduce tariffs on large chip manufacturing countries, which means Taiwan, with the Taiwan Semiconductor Manufacturing Company (“TSMC”) producing 90% of the global most advanced chips. This would represent a shift from the approach of the CHIPS Act, which was implemented under the Biden administration in August 2022. The CHIPS Act was designed to support the U.S. semiconductor manufacturing industry, primarily through subsidies. An introduction of increased tariffs would lead to a rise of chip prices across the global supply chains and possible disruptions due to its general tangled multinational, multi-layered nature.

What are the relevant legal frameworks and implications?

The return of the Trump Tariffs has the potential to have far-reaching implications to various business sectors and global trade in general. This raises questions about the legal framework for imposing such measures and whether the Donald Trump could face legal challenges in the process and, as a result, for their implementation.

The U.S. legal framework

The legal basis for imposing import tariffs in the United States primarily derives from the U.S. Constitution (Article I, Section 8), which grants Congress the power to levy taxes, duties, and imposts. However, Congress has delegated significant tariff authority to the President through various trade laws over time. This delegation allows the President (without the participation of Congress) to impose significant tariffs under certain conditions, particularly related to national security, trade imbalances, or unfair trade practices. While President-elect Trump will have the majority in Congress to potentially obtain sufficient support for further legislative action, these far-reaching powers still remain relevant. Getting new legislation through Congress is a lengthy process, and it may be subject to legal challenges. In order to provide quick results, as announced during his election campaign, it is therefore probable that Trump will utilise the existing legislation to its fullest extent. By doing so, he will not only have the authority to implement tariff measures, despite potential reservations expressed by some Republican Representatives, but will also be able to do so following the mid-term elections, which could result in a change of majority in Congress. It is therefore beneficial to consider the existing legislation and carefully assess the opportunities that its material scope may present for a second Trump administration.

Key U.S. trade laws that grant tariff powers to the President include:

• Trade Expansion Act of 1962 (Section 232): Permits the President to adjust tariffs on products that are imported in such quantities or under such circumstances as to threaten national security, as determined by the Department of Commerce.
• Trade Act of 1974 (Section 301): Authorizes the President to impose tariffs or trade restrictions if it is determined that foreign countries violate trade agreements or engage in discriminatory practices.
• Tariff Act of 1930 (Section 338): Grants the President the authority to impose tariffs in response to discrimination against U.S. products.
• International Emergency Economic Powers Act (“IEEPA”) of 1977: Grants the President broad powers to regulate imports if a national emergency is declared, typically linked to national security concerns.

During the first Trump administration, tariffs were implemented under various of these laws, including Section 232 of the Trade Expansion Act of 1962 and Section 301 if the Trade Act of 1974 for tariffs on steel and aluminium, and various Chinese products. Similarly, the Biden administration has continued using these laws to address trade imbalances and national security concerns. Regarding potential new tariffs, Trump could rely on a combination of these laws. While there is debate among U.S. law commentators as to the extent to which these laws could serve as a basis even for the implementation of universal tariffs, it seems not entirely impossible. Both laws require a prior investigation by competent authorities and a link to a national security threat, which seems a doubtful argument to apply to across-sector and region-unspecific imports into the United States. However, during Trump’s first term, legal challenges to the Trump tariffs based on these sections did not result in victory. Rather, the U.S. courts have repeatedly applied a broad interpretation of these rules, allowing the President significant leeway.

The oldest piece of legislation, Section 338 of the Tariff Act of 1930, has not been used for over 70 years. However, as suggested by some advisers of President-elect Trump, it might be revitalised as it does not require any lengthy investigations beforehand, which would allow for the desired swift outcomes. The legislation allows for the implementation of tariffs in response to discrimination against U.S. products, which aligns with the broader narrative of Donald Trump that “all trade is unfair” with respect to U.S. products. Furthermore, the legislation does not include many institutional checks and balances to prevent such a sweeping approach. President-elect Trump could potentially use this legal basis not only for tariffs on Chinese products but also for universal tariffs until the courts review these measures.

Another potentially attractive approach to achieve quick results would be to base tariff measures on the IEEPA. Under this legislation, the declaration of a national emergency would allow for broad, also cross-sector tariff increase. In 2019, Trump considered using the IEEPA to impose tariffs on Mexican goods as a means of deterring illegal migration. However, a deal was ultimately reached before that. While the current legislation has not been used by any of the presidents, its predecessor has been invoked by President Nixon in relation to the Trading with the Enemy Act in 1971 to impose import tariffs, which has been upheld by the U.S. Court of Customs and Patent Appeals. Although the declaration of a national emergency could result in legal challenges, the legislation remains an option to act quickly and to impose far-reaching measures.

Lastly, the most concrete proposal for future legislation was presented in the form of the “Reciprocal Trade Act”. On the basis of that act, President-elect Trump aims to introduce “reciprocal tariffs”, which means that he intends to increase tariffs on imported goods from other countries that apply higher tariffs on the same products imported from the U.S. to an equal level. However, Trump would need to bring this new piece of legislation through the Congress, with uncertain success. Its potential impact on key U.S. sectors, such as agriculture, could influence the stance of even some Republicans.

To sum up, from a U.S. legal standpoint, while especially the implementation of universal tariffs may potentially give rise to legal challenges, overall, Donald Trump is likely to encounter minimal legal obstacles on the path towards reintroducing even far-reaching tariffs, given the extent of authority to act unilaterally granted to the U.S. President under the relevant legislation. The main challenge would be political opposition, both domestically and internationally, especially with regards to reactions following potential breaches of international laws.

Conformity of the measures under international law and potential reactions / counter-measures

The international trade law framework is based on three fundamental principles: freer and fair trade, predictability and non-discrimination. This means that the members of the World Trade Organization (WTO) work together on lowering trade barriers through binding and transparent means. Tariffs are therefore set to binding, maximum levels for individual members achieved through negotiations on mutual concessions for each product. The resulting legally binding commitments on cut and bound tariffs are enshrined in the goods schedules of individual members that are part of the Uruguay Round Agreements. In this process, tariff or trade concessions granted to one member must be extended to all (principle of “most favoured nation (“MFN”) treatment”). Tariff increases are only allowed in narrow exceptions, such as to counteract dumping, illicit subsidy measures or import surges that threaten domestic industries (so-called safeguard measures) or “essential security interests”. Furthermore, changes to tariffs can be negotiated on the basis of Art. XXVIII GATT. In such negotiations, Members concerned “shall endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade” than that provided for prior to such negotiations. Such negotiations have to follow a strict procedure foreseen in the provision, bringing together various negotiating parties, including Members “with whom the concession was originally negotiated” and Members that have a “principal” or a “substantial” supplying interest on the concession. Renegotiations involving multiple tariff lines and numerous trading partners require significant time to complete. During this period, the initiating member cannot unilaterally increase its tariffs. The member must wait until the conclusion of the negotiations, which will result in either an agreement or a disagreement among the parties on the new tariffs. If an agreement is reached, the initiating member can then notify and apply its new MFN tariffs. If no agreement is reached, the initiating member is still permitted to increase its MFN tariffs as desired. However, affected WTO members would then have the right to retaliate by withdrawing substantially equivalent concessions within a six-month window.

All of these principles are threatened by the announced tariff plans of the new Trump administration and the requirements of exceptions or tariff renegotiation procedures are unlikely to be met.

The United States, through multilateral trade agreements, governed by the WTO and 14 bilateral or regional Free Trade Agreements (FTAs), has committed to cut down trade barriers and ensure a predictable trade environment by maintaining tariffs within certain “bound” levels.

During Trump’s first term, various affected WTO members have protested against President Trump’s tariff agenda for unilaterally raising tariffs over the agreed bound levels and challenged the measures in front of the WTO dispute settlement body (“DSB”). While the former U.S. administration argued that the tariffs were a just response to unfair trade and a protection measure for domestic industry, this was mostly rejected by decisions of the DSB. Regarding the tariffs on aluminium and steel, the panels found that the U.S. tariffs violated core principles of WTO law and rejected the invocation of the “national security” exception. Generally, the excessive scope and unlimited application of the tariffs imposed under the first Trump administration was mostly found to conflict with core principles of international trade rules and stood little chance of being justifiable under narrow exceptions available under WTO law.

This assessment is likely to also apply to the even more extensive tariffs, such as the threat of “universal tariffs” against all imports into the United States that the new Trump administration plans to implement. In light of the substantial and timely procedural requirements, as well as the absence of immediate unilateral outcomes, it is highly improbable that Trump will initiate a tariff renegotiation under Art. XXVIII GATT.

In the absence of formal negotiation procedures, also proposals like the introduction of reciprocal tariffs are unlikely to be compatible with WTO law. Different countries have different economic needs and policy priorities as reflected in their different tariff concessions enshrined in relevant goods schedules. This means trade negotiations under the WTO/GATT are based on the principle of first-difference (marginal) reciprocity, i.e. countries trade off increased access to their own markets through tariff cuts in exchange for access to export markets, depending on market value and policy interest. By the way of example, in 2020 the EU reduced tariffs on live and frozen lobsters products at the request of the United States while in turn, the United States reduced its tariffs on a group of products of equivalent value and of interest to the EU (e.g. glassware and ceramics). These concessions were then applied to all WTO members in accordance with the MFN-principle. Raising tariffs on any imported good from a third country to the same level as foreign countries assign tariffs to that specific product would disregard this concept as well as the MFN-principle.

Possible reactions and effects on global markets

In light of the potential violations of WTO law and the rules set out in FTAs, it is likely that affected states will take action in response to the expected second round of Trump Tariffs.

One potential course of action would be to challenge the measures before the DSB. However, given that the WTO dispute settlement mechanism currently lacks a functioning Appellate Body due to the U.S. blockade of reappointing judges, and considering that the United States is not a party to the Multi-Party Interim Arbitration Arrangement (“MPIA”), this approach may not be highly effective. As demonstrated by the legal challenges encountered during the previous term, the adoption of dispute settlement reports that are unfavourable to the United States can simply be circumvented through initiating an appeal process.

Affected countries might therefore resort to unilateral retaliatory measures. For instance, when Trump imposed tariffs on EU steel and aluminium in 2018, the EU responded with its own tariffs, so did Canada, Mexico, Turkey, India, and Russia. China, as one of the most affected countries, also responded with massive retaliatory tariffs, eventually escalating into a trade war.

Without the moderating effect of a fully functioning WTO dispute settlement mechanism, the new tariff threats could lead to a wave of unilateral retaliatory measures from countries worldwide that could result in a full-scale global trade war. Furthermore, major import markets such as the EU may face pressure due to trade diversion. Products previously exported from other countries to the United States could now seek new markets, potentially leading to increased strain on affected domestic industries and the possibility of related protection measures. This effect was already observed during the previous Trump administration. For instance, the EU introduced protective measures against steel and aluminium imports from other countries in response to the last Trump tariffs.

Such an outcome would have a significantly detrimental impact on the overall stability of global markets. At the macroeconomic level, experts anticipate a decline in GDP across all affected countries and regions. A recent study by the London School of Economics indicates that tariffs proposed by President-elect Trump could reduce U.S. GDP by 0.64%, China’s by 0.68%, and the UK’s by 0.14%, while the EU would face a more modest reduction of 0.11%, with Germany being the most affected with a GDP loss of 0.23%. Retaliation measures would worsen the situation even more, experts say. For example, if China retaliates with an increase of its average tariff on US imports by 40 percentage points, the world GDP could drop by 0.56% in 2025, reaching a loss of 1.08% by 2028.

Overall, this environment would lead to a significant increase of costs for manufacturing businesses along their supply chains and reduced investments due to an uncertain market environment, generally cutting the benefits derived from international trade.

In less of a doom-day scenario, affected countries and regions could also couple up in bilateral/ plurilateral trade agreements to circumvent the Trump Tariffs and reduce to overall negative impact on global economy. This approach is also recommended by the majority of economic analysts and observers. Furthermore, as the European Central Bank president, Christine Lagarde, has recently advised for the EU, the approach to a reaction to the tariffs threats should be “not to retaliate, but to negotiate. Regarding the EU, this could for instance take the form of offering to buy more U.S. oil and gas, in an effort to ban remaining Russian gas imports or import U.S. military products to further support Ukraine’s defence against the Russian aggression.

Nevertheless, private business operators will need to prepare for any of these scenarios.

How to prepare and how we can help

The new order of global trade will force companies to reassess their risk-exposure to the effects of the planned tariff agenda. The escalating tensions with China will most likely result in a major disruption of supply chains for business operators relying on the import of Chinese products or having manufacturing branches in China. This could not only drive companies to relocate in order to reduce costs but put on risk new investments with Chinese companies. Generally, globally operating businesses, especially when relying strongly on foreign-sourced materials/ equipment, will have to closely monitor the development of the next months and the potential retaliatory actions. Furthermore, it is probable that the introduction of new tariffs will prompt some countries to renegotiate existing free trade agreements or implement new ones. It will be crucial for business operators to be at the forefront of the developments in order to assess the challenges and benefits potentially arising from new rules that may affect their business sectors.

Our international & EU trade and regulatory practice at Ashurst stands ready to support companies navigating these challenges. We are highly experienced across the full spectrum of international trade law issues including WTO law, free trade agreements, trade policy, trade defence, customs and market access, sanctions and export controls as well as regulatory affairs. Furthermore, our team provides clients with in-depth understanding of the latest legislative and regulatory developments to ensure they stay abreast of policy trends and is therefore best equipped to support clients with any issues arising from the next episode of the Trump Tariffs.

To read the full insight as it was published on the Ashurst website, click here.

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