What Trump aims to achieve with his tariff plansFebruary 20, 2025
After promising during his election campaign to put import taxes back at the center of U.S. economic policy, U.S. President Donald Trump has moved swiftly in that direction, announcing multiple plans for significant new tariffs aimed at U.S. trading partners.
Although many of the tariffs have yet to be implemented as the administration uses the threat of them to intimidate or gain leverage on other disputes, the tactics represent a dramatic shift in a global economy where most major economies have sought to reduce trade barriers.
What has Trump done so far?
Trump kicked off a barrage of tariff announcements in early February with a blanket 10% tax on imports from China. Following that move, he announced a plan, since delayed, to end tariff exemptions for “de minimis” merchandise from China and Hong Kong covering packages valued at less than $800.
Trump also ordered 25% tariffs on goods from Canada and Mexico but then paused them for 30 days, until early March, after leaders of the two countries committed to addressing demands he made on them.
Next, Trump unveiled plans for a 25% levy on US imports of steel and aluminum, and directed his administration to propose a round of so-called reciprocal tariffs customized for each trading partner to offset any perceived disadvantage for US manufacturers.
On Feb. 19, Trump said he would likely impose tariffs of around 25% on automobile, semiconductor and pharmaceutical imports.
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Together, the announced measures have the potential to reshape global commerce.
What is Trump trying to achieve?
During his confirmation hearing in early January, Scott Bessent, Trump’s treasury secretary, told senators that people should expect Trump to use tariffs in three ways: to remedy unfair trade practices (which Trump has said would revitalize American industry), to raise revenue for the federal budget (important to help pay for Trump’s plans to extend his 2017 tax cuts), and to use as a lever in negotiations with foreign powers in place of sanctions, which Trump believes have been overused.
Boosting American manufacturing: Trump has talked about using tariffs to revitalize manufacturing and stop the US getting “ripped off” by other countries due to trade imbalances. He has floated the idea of using a mix of tariffs and incentives such as expedited permitting approval as a way to entice companies to build their facilities in the US.
“We’re going to bring the companies back,” he said during an interview with Bloomberg Editor-in-Chief John Micklethwait at the Economic Club of Chicago in October. “We’re going to lower taxes still further for companies that are going to make their product in the USA. We’re going to protect those companies with strong tariffs.”
Trump imposed several rounds of tariffs on Chinese goods during his first term and said he was just getting started using them to remake the US economy when the Covid-19 pandemic hit and scrambled his plans.
Howard Lutnick framed the tariff plan as a means to regain the world’s respect during his confirmation hearing as commerce secretary, telling senators that US allies and adversaries alike “are taking advantage of us, they are disrespecting us and I would like to see that end.”
Raising revenue: Income from tariffs could help pay for the tax cuts promised by Trump. He wants to extend reductions in income taxes that were approved in 2017 during his first presidency, many of which are due to expire at the end of 2025.
He’s even floated proposals for expanding these tax breaks, for example by exempting tips and social security earnings from taxation. He also aims to slash the corporate tax rate to 15% from 21%.
These measures are expected to lead to a loss in government revenue of $4.6 trillion over 10 years. “Tariffs can easily pay for that,” Peter Navarro, a Trump trade adviser, told CNBC on Jan. 31. “President Trump wants to move from the world of income taxes and countless IRS agents to the world where tariffs, like in the age of [President William] McKinley, will pay for a lot of government that we need to pay for and lower our taxes.”
Wielding a weapon of diplomacy: Trump has become skeptical of sanctions because they drive other countries away from the dollar, and sees tariffs as a way to gain leverage in negotiations, according to Bessent.
Trump’s brief January standoff with Colombia — in which he threatened to impose tariffs over repatriation flights for undocumented migrants — provided a glimpse of Trump’s strategy.
For a few hours, it seemed that a trade war between the US and one of its closest allies in Latin America was inevitable. Then Trump pulled back on his threat after an agreement was reached between the two countries.
The White House said Colombia had “agreed to all of President Trump’s terms” and would accept deportees on US military aircraft. Colombia sent military planes to the US to pick up dozens of nationals.
Trump’s tariff orders on imports from Canada, Mexico and China are intended to address what he calls a “threat to the safety and security of Americans, including the public health crisis of deaths due to the use of fentanyl.” Trump’s decision to delay tariffs on Mexico and Canada for a month came after their governments agreed to step up efforts to address illegal migration and drug trafficking at the border.
How radical is Trump’s approach?
Some preexisting US tariffs on goods from China, Canada and Mexico already approached or even exceeded the levels Trump set. But these only apply to select categories of goods. Levying them across the board is a major departure.
Those preexisting, relatively high tariffs apply to such a small portion of US trade that the US has had a trade-weighted average tariff rate of 2% for imported industrial goods. (That figure can be calculated by dividing the total value of imports by the total tariff revenue.) Such goods make up 94% of US merchandise imports by value, and half of them entered the US duty-free.
And on top of Trump’s proposed blanket tariffs are all the others.
Is Trump’s approach new?
The US taxed imports heavily for much of its history before largely abandoning the policy beginning in the 1930s, as government leaders embraced the idea of free trade.
A big reason for that was the reaction to the Smoot-Hawley Act of 1930, which led to an estimated increase of roughly 20% in average import duties. The act provoked retaliatory tariffs from foreign governments, resulting in a drop in global trade and a deepening of the Great Depression.
That debacle kicked off a multidecade period that saw the rise of free trade, which culminated in the creation of the World Trade Organization in 1995. During that time, tariffs became anathema to the Republican Party.
They made a comeback during Trump’s 2017-2021 presidency, when he turned to them in an effort to revitalize American industry and counter what the US regards as China’s unfair trade practices. President Joe Biden kept the trend going.
How does China figure into all of this?
For decades, the belief in free trade was backed by a bipartisan consensus in the US and by multinational corporations that wanted access to cheap and efficient supply chains overseas. China’s ascension as a global economic power broke that consensus.
Admitted to the WTO in 2001, China gained greater access to global markets even as its critics say it violated the letter and spirit of free-trade rules, for example by subsidizing its industries and compelling foreign companies operating in China to part with their know-how.
A number of researchers have concluded that competition from China triggered a decline in US employment among manufacturers that faced a surge in imports.
During Trump’s first presidency, his administration imposed new tariffs on Chinese imports that were worth about $380 billion in 2018 and 2019.
The Biden administration maintained those levies and raised more of them in 2024 on goods worth an additional $18 billion. The new enthusiasm for tariffs has spread to the European Union.
It voted in early October to impose duties as high as 45% on electric vehicles from China, which in turn has threatened to retaliate against European products.
Can Trump raise tariffs without congressional approval?
Yes. Through a number of statutes, Congress has empowered the US president to modify tariffs to address a variety of concerns.
These include a threat to national security, a war or emergency, harms or potential harms to a US industry, and unfair trade practices by a foreign country.
While companies might try to fight higher tariffs in court, because of past deference given to presidential powers, such challenges “would face a steep uphill climb,” according to an article posted by the Center for Strategic & International Studies and co-authored by Warren Maruyama, a former general counsel for the Office of the US Trade Representative.
How do tariffs work?
A tariff, also known as a duty or levy, is usually calculated as a percentage of a good’s value (as declared during the customs clearance process.) It can also be levied as a fixed amount on each item.
Goods that cross borders are given numeric codes under a standardized nomenclature called the “international harmonized system.”
Tariffs can be assigned to specific product codes relating to, for example, a truck chassis, or to broad categories, such as electric vehicles. Customs agencies collect tariffs on behalf of governments.
Who pays tariffs?
Tariffs are paid by the importer, or an intermediary acting on the importer’s behalf, though the costs are typically passed on. Trump argues that, ultimately, it’s the exporter who effectively ends up shouldering the cost of a tariff. Studies have shown the burden is more diffuse.
The foreign company that makes the product may decide to lower prices as a concession to the importer. Or it might spend significant sums to build a factory somewhere to sidestep the tariff.
Or an importer — Walmart and Target are among the biggest in the US — could raise prices of the item when it’s sold on. In this case, it’s the consumer who shoulders the tariff cost indirectly.
How do tariffs affect the economy?
It can be difficult to sort through the economic effects of tariffs. They can stimulate employment by attracting investment as companies try to get around tariffs by moving factories to the taxing country. At the same time, they can provoke retaliatory tariffs that cost jobs in other parts of the economy.
Moments after the new US tariffs on China took effect, Beijing blacklisted a handful of American companies, imposed import levies on some US oil and other goods and placed export controls on a selection of critical minerals. Before Trump delayed the tariff hikes on Canada and Mexico, those two countries had also said they would retaliate if the levies were increased.
When a country imposes import tariffs, domestic manufacturers don’t necessarily leap in to start making the products affected. And if the nation has no alternative domestic supply of the goods concerned, then prices of those goods can go up.
Economists are still untangling the inflationary effects of Trump’s initial tariffs from a much bigger shock to supply chains and economic activity that started not long after the US-China trade war began: the Covid-19 pandemic.
In February 2019, the Federal Reserve Bank of San Francisco estimated that the tariffs were adding 0.1 percentage point to consumer price inflation and 0.4 percentage point to a metric that measures the costs for businesses to invest.
Erica York, senior economist at the nonpartisan Tax Foundation, estimated that the higher tariffs imposed by Trump and Biden increased annual costs for the average US household by $625.
In addition, York estimated that the hikes would eliminate 142,000 full-time jobs and, over the long run, would reduce long-run gross domestic product by 0.2% on average. Critics of Trump’s further tariff increases say they will have the same kinds of effects at a greater scale.
Daniel Flatley and Brendan Murray, Bloomberg News
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