By Lisa Nathalie
Within a hundred days of his resumption of office, President Donald Trump initiated a number of policies that sparked trade wars within North America, reaching Europe and even far away China. What's more interesting is that this is not the first time Donald Trump's government would impose tariffs. However, this time, the policies seem to bear more sting. In this article, we explore the effects of Donald Trump’s trade war on the US as well as on the global economy.
How did the Trump trade war begin?
Trade wars occur when countries impose economic measures like tariffs or other barriers against each other. While these policies aim to boost domestic production, they typically harm the targeted nations' economies. The Trump trade war initially erupted in 2018 during President Trump's first administration when he imposed significant tariffs on steel and aluminum imports. After his re-election, Trump continued and expanded these protectionist policies.
The primary targets of the trade restrictions have been Mexico, Canada, European Union nations, and China. In response, most of these countries have implemented their own retaliatory measures against the United States, escalating the economic tensions into a full-scale trade war.
What are the details of Trump’s tariffs and regulations?
Trump’s trade policies could be rounded as follows:
- A 10% baseline tariff for almost every import coming into the country, starting from the 5th of April 2025.
- Tariffs on imports from China increased from 20% to 145%.
- Under the United States-Mexico-Canada Agreement (USMCA), products that comply with the rules can move between these three countries without extra taxes. Products that don't comply with these rules are subject to a 25% tax when crossing borders. Energy products and potash are exceptions—they only receive a 10% tax if they don't comply with the rules.
- Some electronic products, such as smartphones, computers, and computer chips, don't have to pay the high taxes that most Chinese imports face. This is great news for tech companies like Apple that need to bring these products in from China.
These tariffs were meant to benefit the US economy in the following ways:
- To improve consumers' focus on internally manufactured products and create more factory jobs for locals by making imports more expensive.
- To have better leverage during trade negotiations and improve international market access for businesses resident in the U.S.
- By reducing imports and increasing exports, the U.S. can reduce its trade deficit and increase the dollar's strength. For example, the United States imports 3 times more than what it exports to China, which has created a trade deficit of over 300 billion dollars in China’s favor.
- Increase national self-dependence by reducing vulnerability to geopolitical rivals who may decide to cause supply chain shocks to target the U.S. economy.
- To encourage investors to invest more in companies producing within the country as imports have become expensive.
How has this impacted the US economy?
Just like during Donald Trump’s earlier trade war, the recent tariff increase is having a number of economic effects in the United States. Let’s discuss a few of them.
Increased cost of living
One of the effects of the Trump trade war is the rising cost of living for consumers in the United States, and the explanation is pretty straightforward. A 145% tariff on consumer goods imported from China automatically raises the price of such goods in the country. For example, if a product were to be imported from China for $100, barring tariffs, the current tariff would mean that a consumer would pay no less than $140 for that product.
Threats of inflation
Just as the economy was about to get a breather on inflation, the new tariffs raised the burden again. As the cost of importation rises, the cost of consumer goods follows, heating up the economy as a consequence. Economic analysts warn that this may disturb the Federal Reserve's mandate to manage the country’s inflation via rate cuts. It is also worth mentioning that interest rate cuts were anticipated by the middle of 2025, but the current inflationary threat may hinder that.
Hits on the agricultural and industrial sector
As tariffs discourage imports, exports to targeted countries are also affected. The industrial and agricultural sectors are some of the worst-hit sectors of this crossfire. An example is the case of the People’s Republic of China going down on importing soybeans and pork from the United States. This is an immediate economic disadvantage for farmers, as lesser export demand means less income generated. This would force farmers to rely on government aid to survive. On the industrial front, several American companies utilize the benefits of devalued currencies of Southeast Asian countries for lower production costs. However, the new trade policies mean that such companies would face penalties unless they relocate to the United States.
Uncertainty for investors
The situation remains uncertain for investors for obvious reasons. Several companies are delaying or canceling expansion or investment plans due to trade policy uncertainty. These uncertainties force companies to re-evaluate their target market and raw material sourcing, costing a lot of capital. Investors engaged in online trading can use tools like Tradingview to track key metrics for profitable trades.
What does it mean for the global market?
Canada, one of the countries primarily affected by Trump’s tariffs, is also facing an economic downturn due to reduced exports to the United States. However, this is not without a retaliatory response from America’s northern neighbor as they have also imposed a 25% tariff on automobiles imported into the country from the United States. Just like China, which also responded with a 125% tariff on US imports, Canada and other affected countries have set up stimulus packages while looking for new export markets.
One profound effect of Trump’s trade war is the realigning of international supply chains. When Trump’s trade affected China post-2020, several firms relocated to unaffected nations like Vietnam. However, the recent policy has ensured that previously safe nations are now also targeted. This is because countries like Vietnam, which has trade surpluses against the US, are now under pressure.
Despite all these, not every foreign nation is on the losing side. Some emerging markets, such as Turkey, are receiving new attention as firms seek alternative sourcing locations. This is not to forget that smaller economies heavily tied in trade relations with the United States and China face currency fluctuations and economic instability. Tradingview, as one example, can help forex traders track these currencies' performance to provide financial trading insights.
Short-term pain for long-term gain?
The Trump-led government believes that despite the short-term economic pressure the American economy faces, the tariffs are a viable plan for long-term economic stability. The tariffs were initiated to scale industrial activity in the United States, reduce unemployment, lower the country's trade deficit, and strengthen the dollar. However, the economy appears to be overheating in the short term with increased consumption costs and signs of inflation. Also, local companies struggle to keep up with consumer demands while uncertainty hovers around the country's investment climate.
