There has been a continuous stream of engagement on the tariff regime being implemented by the Trump administration, much of it negative.
Many commentators made up their minds about the impact of the tariffs the moment they were announced, without any real consideration of the arguments around their justification. This article will seek to present all the arguments, empower you, the reader, with some background, and juxtapose these different arguments against each other so that you can judge for yourself.
So, what has Trump been saying about tariffs? These quotes stand out for me.
“ Tariff is my favourite word and the most beautiful word in the dictionary.”
“We’re going to have 10% to 20% tariffs on foreign countries that have been ripping us off for years.”
“We’re going to be a tariff nation. It’s not going to be a cost to you. It’s going to be a cost to another country.”
“You see these empty, old, beautiful steel mills and factories that are empty and falling down. We’re going to bring the companies back. We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.”
And most recently, as the impact of the tariffs has been felt:
“I may give a lot of countries breaks.”
The motivation by Trump and his administration regarding tariffs is primarily about restoring American manufacturing to its former glory. This is the narrative they have continuously pushed, which is the belief that protecting local industries is going to be a core way to drive job-creation in the United States of America. However, there are two further narratives that are worth unpacking. Trump has expressed concern about the trade deficits that the USA has with various countries around the world, primarily because he believes those deficits are the result of either barriers to entry into those foreign markets for American firms, or unfair trade practices.
In 2024, the USA had a trade deficit with 92 countries around the world, and a surplus with 111 countries. The USA ran an overall trade deficit of $1.2 trillion in 2024. What does this mean? It means that the USA imported more goods in value than it exported to the world.
The top ten countries that run a trade deficit with the USA in dollar value of billions are: China ($270.4b), Mexico ($157.2b), Vietnam ($113.1b), Ireland ($80.5b), Germany ($76b), Taiwan ($67.4b), Japan ($62.6b), South Korea ($60b), Canada ($54.8) and India ($41.5b). If you count the European Union as a block, it is the second-biggest at $236 billion.
The top ten countries that run surpluses with the USA are, Netherlands ($56b), Hong Kong ($22b), United Arab Emirates ($19b), Australia ($18b), United Kingdom ($12b), Belgium ($15b), Panama ($10.7b) and the Dominican Republic ($5.8b).
Trump has implemented a 20% tariff on all goods imported from China. On the EU he has placed 25% tariffs on steel and 10% on aluminium. The same for Mexico and Canada. Recently he also announced a punitive tariff of 25% on goods from countries which import oil from Venezuela.
As you can see, the above countries all run trade deficits with the USA. They have also all indicated that they will be implementing retaliatory tariffs against the USA in response.
There are also several tariffs that Trump has tabled with an anticipated implementation on 2 April. He has threatened various new tariffs over the last few weeks. In January he gave an executive order to certain cabinet secretaries to develop reports by 1 April on new trade practices and potential tariffs, which they can deliberate on further. Thus, the beginning of April is going to be an important time in the ongoing trade war.
What have been the immediate consequences of the tariffs?
The financial markets did not take kindly to their implementation. Sharp declines were reported across the S7P 500 and the Dow Jones Industrial Average. These were followed by recoveries when Trump indicated that he might roll back some of the tariffs. It is estimated they could affect US Gross Domestic Product by 0.4% and that 309 000 full-time jobs could be at risk. There has also been an increase in consumer prices for the goods affected by the tariffs and inflationary pressures. The steel and aluminium industries have benefited from the reduced foreign competition. There are also reports of major companies adjusting their supply chains, and sourcing either from USA companies domestically or from other countries not currently being tariffed.
Federal Reserve Chairman Jerome Powell has expressed concern about the tariffs, warning that they lead to higher inflation. The Federal Reserve has left interest rates untouched. Thus, the immediate short-term consequences of the tariffs are of course negative, but to a degree that would be expected, because firms would take much longer to adjust their supply chains if they anticipated that the tariffs were going to remain permanent.
A core argument against the tariffs is that the USA is now primarily a service-based economy. This is where the developed world has moved to, and the rejuvenation of manufacturing is a pipe dream. The counter argument is that many workers are being left out of this heavy focus on tech service economy and are watching their jobs being taken overseas. A key argument by the Trump administration is that the heavy reliance on certain goods such as steel and aluminium by foreign countries creates a security risk for the USA and a level of dependence that the country should not have.
The beginning of April is going to be an interesting time because either the Trump administration will step up the trade war to a whole new level, or it will back off. Trump is very sensitive to movements in the financial markets, and potentially the mass sell-offs that occurred with the tariff implementation have spooked the administration, hence the hinting at rolling back. Nonetheless, the US economy is incredibly robust and could likely take the pain of inflation pressures for much longer if the long-term benefit ultimately results in strong domestic economic growth. But how long is that? And how much pain could it take?
[Image: Cartoon by David Doubell]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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