Trump’s tariffs reshape global trade and foreign policies
President Trump’s second term is seeing an intensification of tariff use, reshaping U.S. trade policies and global economic relations.
In a nutshell
- Few nations are safe from tariffs, with Canada, Mexico and China hit first
- China faces unique tariffs compared with countries with trade in goods deficits with the U.S.
- Other Asian nations, Brazil, India and Europe are next in line for tariff negotiations
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It is President Donald Trump’s second and final term in the White House. The gloves are off, and he has made it clear that his administration is ready to reshape America’s economic and foreign policies. His go-to tool for changing these policies is tariffs. Much like in his first administration, tariffs remain one of Mr. Trump’s signature strategies for addressing trade imbalances and foreign negotiations alike.
Meanwhile, the United States Congress, which holds the ultimate authority over U.S. tariffs, remains mostly silent. Both the House of Representatives and the Senate have Republican majorities, and neither seems prepared to confront the White House over tariffs – at least, not yet.
Tariffs are being applied left and right, with some quickly negotiated away or delayed.
The Trump administration has already imposed tariffs on goods from Canada, Mexico and China, as well as renewed tariffs on steel and aluminum imports from all countries. The administration has also threatened tariffs on Colombia, the European Union and others.
Tariffs are being applied left and right, with some quickly negotiated away or delayed. Entirely new tariffs could be coming within the next several months. Here is a quick roadmap to President Trump’s new tariff arsenal.
Four categories of tariffs
There are four main categories of tariffs: negotiating tariffs, protectionist tariffs, reciprocal tariffs and trade deficit tariffs. Then there are China tariffs.
Negotiating tariffs. These tariffs have less to do with U.S. economic policy and everything to do with foreign policy. We have already seen several instances where tariffs were threatened as a negotiating tactic. Within the first week of his inauguration, Mr. Trump issued a warning of tariffs against Colombia if they did not allow Colombian illegal immigrants currently in U.S. custody to be returned handcuffed on military planes (as opposed to unhandcuffed and on civilian planes, as was the previous norm). This issue was quickly resolved and Colombia agreed to accept the return of its citizens on these terms to avoid tariffs.
Then, on February 1, the White House announced an extra 10 percent tariff on imports from China, along with 25 percent tariffs on imports from Canada and Mexico, if these three countries did not take reasonable measures to address the flows of immigration and fentanyl into the U.S.
Respective deals were quickly announced between the U.S. and Canada and Mexico, delaying the imposition of these tariffs, if only for one month. The levies came into effect on March 4. The tariffs on imports from China remain in place and Beijing has instead retaliated with measures against the U.S., its exports and American companies.
Protectionist tariffs. These tariffs focus more on strategic industries that the president and his advisors deem essential to shield from foreign competition. A notable example is the recent announcement that tariffs on steel and aluminum imports will be raised to 25 percent. This time, there may be few, if any, exemptions for strategic partners and allies, unlike those granted in 2018.
President Trump has also discussed levying tariffs on products such as semiconductors, pharmaceuticals, and oil and gas, among others. While there is no definitive list of which industries the White House deems important, there is a consensus that enhancing manufacturing in specific critical sectors needs to occur within the U.S. Other sectors that might face tariffs include automobiles, batteries and critical minerals.
Reciprocal tariffs. The theory behind these measures is that the Trump administration intends to review each country’s harmonized tariff schedule line-by-line. When a country imposes a tariff rate on an import that is higher than that of the U.S., the administration will implement an equivalent level of tariff. This will only take effect when other countries have higher tariffs, not if the U.S. has a higher rate.
These reciprocal measures may not only be among the most challenging categories of tariffs to apply – considering the level of scrutiny required for each country’s trading system – but they may also be the most controversial. This would effectively extend beyond the national security exemptions that the Trump administration has previously relied on to impose tariffs. Ultimately, Congress would need to agree to grant the president the authority to impose these new tariffs over the long term.
There have even been some suggestions that non-tariff barriers, such as a value-added tax or foreign automobile regulations, could be included in this effort. These would add an additional level of complexity given that some non-tariff barriers are difficult to quantify as a reciprocal tariff rate.
Trade deficit tariffs. On the first day back in office, the Trump administration published its America First Trade Policy. Among the many directives outlined in this memorandum, the first task is for the secretary of commerce, in consultation with the secretary of the treasury and U.S. trade representative, to investigate America’s trade deficits in goods. They are to determine the reasons for the significant trade deficits in goods and identify any resulting economic or national security implications. Additionally, they are to recommend policies to address these deficits, which can include tariffs.
Whether Trump officials want to completely eliminate or merely reduce the U.S. trade deficit in goods has significant implications for the level of tariffs that might be implemented. Measures such as the reciprocal tariffs list will also be employed to mitigate U.S. trade deficits. However, it is uncertain whether the reciprocal and trade deficit tariffs will work together or simply overlap. These efforts may become even more complicated as negotiation tariffs and protectionist tariffs are also introduced.
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Countries where the U.S. has a trade surplus in goods, like the United Kingdom and Australia, are usually safe from trade deficit tariffs. Nevertheless, they may still face other types of tariffs. This includes the Netherlands, where the U.S. has a trade surplus in goods but the country is part of the EU and will be affected by any U.S. tariffs aimed at the entire bloc.
In 2024, the U.S. recorded a total trade deficit in goods of $1.42 trillion with various deficit countries. Notably, the top 20 nations contributing to this deficit accounted for approximately $1.3 trillion, which represents around 92 percent of the overall total.
As shown in the chart above, the U.S. gap with China in 2024 totaled $295 billion. Some countries, such as Mexico ($172 billion), Japan ($68 billion), South Korea ($66 billion) and Canada ($64 billion), already have partial or comprehensive trade agreements with the U.S. It follows that new tariffs could violate these trade agreements.
The U.S. also has significant trade deficits with Vietnam, Thailand, Malaysia, Indonesia and Cambodia, all of which are members of the Association of Southeast Asian Nations (ASEAN) and are still regarded as developing nations. Levying new trade deficit tariffs on China, Taiwan, Japan, South Korea and India could disproportionately affect America’s largest Asian trading partners.
Scenarios
We can certainly expect more tariffs over the next four years. Whether it is targeted tariffs that have a minimal impact on imports or broader tariffs targeting any country with which America has a trade deficit in goods, tariffs will continue to play an important role in President Trump’s foreign policy. Finally, any political dispute with another country, whether trade-related or not, could at least involve a threat of tariffs.
Most likely: China and countries relying on Chinese components to see additional tariffs
The most likely tariffs we should expect over the coming months, if not years, are more tariffs on imports from China. Countries that the U.S. has large trade deficits in goods with, which also rely on a significant amount of imports from China, such as Mexico or Vietnam, may also see additional tariffs.
Tariffs on China will not only include all four of the previously mentioned categories, but there will also be new measures recommended by Mr. Trump’s advisors who aim to decouple the U.S. economy from China.
The tariffs imposed by the Trump administration on imports from China between 2018 and 2019 remain in effect. Many initially viewed these as negotiating tariffs, and Washington and Beijing reached an agreement in 2020. Yet, the U.S. trade deficit in goods with China has not significantly decreased over the past 10 years: The U.S. still imports far more goods from China than Americans export to China.
Moderately likely: Universal tariffs on all imports into the U.S.
A new tariff on all imports into the U.S. is possible. Whether it would be at a rate of 10 percent or 20 percent, it would result in a significant increase in the cost of imports and would likely harm the American economy more than Mr. Trump is willing to accept.
Less likely: Broad reciprocal tariffs
Implementing reciprocal tariff rates on all imports would be a logistical nightmare for the Trump administration. Moreover, enforcing the tariff could be more challenging than officials anticipate, especially as the federal workforce is rapidly downsized. That said, it is possible there may be targeted reciprocal tariffs on some of the highest tariffs globally. For instance, India and Brazil are large economies with high tariffs on U.S. goods, making them potential targets.
Conclusion
Foreign governments and their trade negotiators will need to correctly identify which U.S. tariff category they may fall under. They must also decide whether or not to retaliate against new tariffs and risk escalating matters.
Some countries have already been considering ways to negotiate with the Trump administration to avoid most, if not all, new tariffs. It is unclear whether any country will be completely safe from at least some tariffs.
For developing countries, particularly those in ASEAN, this could be a challenging time. Over the past several years, these nations have been attracting new foreign investment as supply chains shift away from China. But with little to offer President Trump in a negotiation, they too may be the next target of his tariffs.
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