Donald Trump has made it clear that upon his return to the White House, tariffs will once again be a cornerstone of his economic strategy. Recently, he proposed the introduction of a "universal baseline tariff" on almost all imports, a move that could reshape global trade relations. Specifically, he has signalled plans to impose tariffs on Canadian and Mexican goods, a sharp pivot from the cooperative framework of the USMCA. Additionally, he continues to criticise China, suggesting that even harsher measures may be required to "bring manufacturing back to America." But will this ambitious tariff policy strengthen the U.S. economy, or could it end up isolating America from its closest trading partners and hurting its own consumers?
Tariffs have long been a controversial tool in economic policy, often with unintended consequences. A prime example is the "chicken war" of the 1960s, when European tariffs on American chicken led to a US retaliatory tariff of 25% on imported light trucks. While this measure was intended as a temporary counteraction, it has persisted for over 60 years. Today, this tariff protects American truck manufacturers from foreign competition, but it has also stifled innovation and contributed to higher prices for consumers. Trump’s proposed tariff strategy risks creating similarly lasting repercussions. While the short-term objective might be to bring jobs back to America, history shows that tariffs often lead to retaliation, trade disruptions, and higher costs for everyone involved.
Trump’s first wave of tariffs in 2018 targeted steel and aluminium imports, imposing rates of 25% and 10%, respectively. While these measures did benefit domestic steel producers, they also had significant downsides. Ford and General Motors, for example, reported over £800 million in combined losses due to increased material costs. This demonstrates how protective tariffs can backfire on other industries that rely on imported goods. Further evidence of the downside comes from agriculture. After China retaliated with tariffs on American goods, soybean exports to China fell by 75% in 2018, dropping from 31.69 million metric tons in 2016/17 to 8.24 million metric tons in 2018/19. This devastating decline forced the US government to provide billions in subsidies to affected farmers to mitigate the financial impact.
Trump’s latest proposal would impose tariffs across the board, seemingly to create a more balanced playing field. However, this sweeping measure could have far-reaching consequences. Canada and Mexico, two of America’s largest trading partners, would face stricter import restrictions, potentially undermining regional cooperation. For China, these tariffs could escalate tensions, risking further disruptions to global supply chains. While this policy might temporarily boost American manufacturing, it could also lead to higher prices for everyday goods. Tariffs -which act as a hidden tax on imports- often see consumers bear the brunt of these costs. For lower-income households already struggling with inflation, this could be particularly detrimental.
Trump’s tariff policies also risk alienating key allies and trading partners. If other nations retaliate, as China did in 2018, the global economy could face significant instability. Companies may move supply chains out of the US or delay investments, reducing the long-term competitiveness of American industries. A universal baseline tariff could also violate international trade agreements, sparking legal disputes and further straining diplomatic relations. The World Trade Organization has previously ruled against unilateral tariff measures, which raises questions about the feasibility of Trump’s approach.
In the short term, Trump’s tariff policies could create jobs in specific industries, particularly in steel and aluminium production. However, these gains might be outweighed by losses in other sectors, such as automotive manufacturing and agriculture, where higher input costs and reduced export opportunities could lead to job cuts. Long-term consequences are even harder to predict. Will these tariffs truly incentivise companies to relocate manufacturing back to the US, or will they simply pass on higher costs to consumers? Moreover, the broader economic strain of a trade war could slow growth and erode the US’s position in global markets.
Trump’s proposed tariffs are ambitious, but they carry significant risks. While they may resonate with voters who feel left behind by globalisation, their economic impact is far from guaranteed to be positive. If history is any guide, such measures often lead to retaliation, higher prices, and unintended consequences that ripple across industries.
Ultimately, the question remains: can Trump’s tariff strategy revitalise American manufacturing, or is it a dangerous gamble that could isolate the US from its closest trading partners? The answer will depend on whether short-term gains can outweigh the long-term costs - and whether America’s trading partners are willing to play along.
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