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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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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The answer is the same one that the 16th century Swiss physician and alchemist Paracelsus gave about dosages of medicine—given in moderation and for the right purpose, they can help heal. Given in excess, they become a poison.

Special additional tariffs are part of current trade remedies, adopted as a matter of national policy and embedded in domestic US law and international agreement. They are recognized therefore as “good” by Congress even if hardly ever welcomed by the measures’ opponents. Additional tariffs are mandatory to offset dumping (sales at less than fair value) and foreign subsidies where material injury is found. And where there is serious injury, the president is given discretion to impose additional tariffs under a safeguard provision. The policy behind the use of these remedies is not just one of equity. The provision of trade remedies may well have been necessary to allow a system of generally open trade to survive with sufficient domestic political support.

There is a second grouping of tariffs (and subsidies, which are another form of protection) that was considered good by the Biden administration and perhaps by a majority in Congress. These measures were selective. A key US national security objective during the Biden administration was to assure that the United States had the ability to manufacture leading edge semiconductors. This was done through subsidies in the CHIPS Act and through tariffs imposed under separate presidential authority. Similarly, climate change and geopolitics were seen during the Biden White House as worthy objectives for support. This accounts for the current additional tariffs and subsidies for batteries, electric vehicles (EVs), and the like.

The use of tariffs (and subsidies) is not free of controversy, however. The tariffs on EVs and batteries slow the ability of the country to meet climate objectives. At the other extreme, whether climate change is seen as a problem or even acknowledged by the next administration is unknown.

President Trump went far beyond suggesting the selective use of tariffs in his campaign. He spoke very often of imposing a blanket tariff of 10 or 20 percent on all imports, with a 60 percent tariff on Chinese imports. The blanket tariff of 10 or 20 percent would not readily be avoided unless an adequate domestic supply of the goods in question can be produced domestically at a higher price due to the tariff or a sufficient bureaucracy is installed from which to seek exemptions from the tariff.

It is clear that several of those likely to have a major role in the incoming Trump administration, as well as the president-elect, consider this to be a good use of tariffs. Others, outside the new administration, will continue to disagree—including nearly all economists, many US businesses dependent on imports for necessary inputs, and all US trading partners.

It is widely agreed that the high tariff signed into law in 1930 by President Herbert Hoover was a colossal error. Thirteen presidents, from Franklin D. Roosevelt up to and including Barack Obama, accepted the premise that lowering tariffs and conducting trade based on agreed rules would increase global economic activity and generally benefit the US. That policy ended with Donald Trump and was not revived by Joseph R. Biden Jr.  High tariffs may now be tried with the announced goals of reining in the US trade deficit and raising US manufacturing employment. Trade deficit reduction, if it occurs, might be achieved at a lower level of economic activity at home and abroad. In that case, manufacturing employment could actually decline. A blanket tariff will clearly generate upward price pressure and lower consumption of imports. That much is sure.

The American people have not been told that they will bear the cost of the tariff (in fact, they were told foreign exporters would pay it) nor that they should consume less. The blanket tariff is a way to lower consumption without admitting that this is what is going to take place. No US administration has sought to impose a value added tax (a national sales tax) because of its domestic unpopularity. There was no mandate from the election to make consumption less attractive, and even less possible for those at the lower end of the economic scale.

It has been claimed that a blanket tariff will cause the shifting of production to domestic factories. It is not at all clear, however, that this works. US production of steel and aluminum did not increase because of the Trump tariffs of 25 and 10 percent, respectively. Nor is it credible that goods that now are almost entirely sourced abroad, like shoes and clothing, will substantially return to being produced domestically. Does a 10-20 percent tax bring about a recapture of industries lost when competitive advantage has shifted abroad? And where would the additional resources come from to make these new goods, if not from sectors that are already producing needed goods and services, including for export industries. The economy is at full employment. It is true that a 10-20 percent cost advantage solely due to the tariff might be sufficient to determine future investment decisions about plant locations. But the US would have to be closer to being cost competitive for the product in question for that to take place, and tariffs would make the US a less competitive base for exports.

Winning the popular vote by a wide margin, reelected President Trump will consider that he has a clear mandate to make greater use of tariffs. A cautionary note should be sounded, however, due to the UK’s experience with Brexit. Brexit made trade far more difficult between Britain’s largest trading partner, the EU. 
The Conservative government sold Brexit as a cost-free stroke of good fortune. It wasn’t. In June 2016, 51.89 percent of the British electorate had voted for Leave compared with 48.11 percent for Remain, a margin of 3.78 percentage points. This year, the political party responsible was resoundingly beaten at the polls. Current polling (as of May 2024) shows that now over 55 percent think leaving was a mistake versus 33 percent that it was the right thing to do. Nonetheless, there are immense obstacles to Britain now returning to the EU. Some damage cannot easily be undone.

In the 2024 US presidential election, the vote for Trump was 50.3 versus 48.1 percent for Kamala Harris. This is a similar margin to the other major economic vote of our time, Brexit. Now there is little doubt that Trump is going to impose much higher tariffs perhaps with the aid of Congress. The 2026 mid-term election may show what voters think of an abrupt and substantial tariff imposed by President Trump early in 2025. Even if they change their minds, some of the resulting damage to the world trading system and the US economy will be hard to undo.

To read the blog as it was published by The Peterson Institute for International Economics, click here.

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In contrast, Kamala Harris is not expected to prioritise trade, at least in the early part of her Presidency. Her approach would largely continue the Biden administration’s “worker-centric” trade policies, emphasising sustainable and fair trade practices, with a focus on human rights, labour, and environmental standards. Harris would likely pursue strategic partnerships and multilateral frameworks, though she would also be willing to use tariffs selectively, particularly against China, to safeguard American jobs and industries, thus also not complying with multilateral rules.

Both candidates share concerns over avoiding China to become the new superpower and protecting the US economy, although Trump would likely pursue a more radical decoupling strategy. Neither administration is expected to prioritise free trade agreements, and multilateral engagement, especially with the World Trade Organisation (WTO), would be deprioritised under both candidates.

The European Union (EU) must prepare for an increasingly inward-looking US trade policy, regardless of the outcome. Under Trump, EU-US relations would likely face heightened tensions, with tariffs, trade disputes and a reshuffling of value chains significantly affecting EU exports and economic growth. A Harris Presidency would offer more stability, but EU-US relations may still be marked by cautious cooperation, particularly in addressing global trade challenges posed by China.

Key recommendations for the EU include balancing short-term and long-term priorities: deepening the EU cohesion allowing it to respond to unilateral aggressive initiatives, while deepening transatlantic cooperation through platforms like the Trade and Technology Council (TTC), strengthening ties with like-minded democracies, and adopting a unified approach to counterbalance US pressure. The EU should also continue its leadership in modernising global trade rules through the WTO.

To read the policy paper as it was published on the Jacques Delors Institute webpage, click here.

To read the full policy paper, click here.

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