‘It will eventually mean that other countries and regions trade more with each other than with the U.S.,’ economics author Michael O'Sullivan said.
News Analysis
As tariffs put in place by the Trump administration begin to take hold, America’s trading partners and industries are struggling to calculate what the ramifications might be.
Because tariffs are a tax paid by importers and typically passed on to consumers, economists predict that they will result in higher prices for many goods and could add to inflation, which already wiped out more than 20 percent of the U.S. dollar’s value under the Biden administration and is once again on the rise.
“The real losers in the renewed interest in and implementation of tariffs, whatever the justification, are consumers—both in the United States and abroad, who will encounter higher prices and less ability to purchase the goods they want,” economist Ryan Yonk, senior fellow at the American Institute for Economic Research, told The Epoch Times.
O.H. Skinner, executive director for the Alliance for Consumers, told The Epoch Times that he is open-minded regarding Trump’s tariff agenda.
Skinner said that if domestic production can ramp up to compensate for the increased price of imports, there may be benefits but it also remains to be seen how much of Trump’s tariff agenda actually comes to pass. “Consumers don’t need prices higher in the aftermath of the Biden administration,” he said.
“There’s lots of confusion because it’s just not clear what the objective of the tariffs is,” Michael O’Sullivan, former chief investment officer at Credit Suisse and author of “The Levelling,” an analysis of international economics, told The Epoch Times. “Is it border security, or is it to change trade relationships?”
President Trump has argued that tariffs are both good for the U.S. economically and “a powerful, proven source of leverage for protecting the national interest.”
However, his approach has created uncertainty among America’s trading partners whether the new tariffs are a long-term economic policy that they must adapt to, or simply a negotiating tactic for political concessions.
Using Tariffs for Concessions
Using tariffs as a bargaining tactic, Trump declared illegal immigration and drug trafficking a national emergency on Feb. 1 and
ordered tariffs on America’s three largest trading partners—a 25 percent tariff on imports from Canada and Mexico and an additional 10 percent tariff on goods from China “until the crisis is alleviated.”
Targeted products included oil and lumber from Canada; and electronics, textiles, and computer chips from China. In response, Mexico threatened to impose tariffs on U.S. exports and Canadian Prime Minister Justin Trudeau threatened 25 percent tariffs on $155 billion in U.S. imports, urging Canadians to boycott American goods.
In contrast, Alberta Premier Danielle Smith spoke in a more measured tone.
Asked in a Feb. 4
interview with CTV News why Canada should face sanctions if most of the illegal fentanyl coming into the United States was crossing the Mexican border, Smith
said that Trump “wants us to recognize that Canada enjoys a very special relationship with the U.S. that no other country in the world enjoys, and just show the respect of taking seriously the fact that they’ve got people dying and they want it to stop.”
On Feb. 3, based on assurances from Canada and Mexico, including a promise from Mexican President Claudia Sheinbaum to send 10,000 soldiers to help secure America’s southern border, Trump agreed to delay implementation of the new tariffs for 30 days.
In similar fashion, Trump threatened 25 percent tariffs on Colombia when that country blocked U.S. planes delivering 110 deported illegal immigrants in late January. The threat was dropped when Colombia backed down and sent a military plane to pick up more Columbian illegal immigrants from California.
Tariffs are not only part of Trump’s effort to resolve border security issues but also a strategy to achieve economic goals.
Using Tariffs for Economic Goals
On Feb. 11, Trump
reinstated a 25 percent tariff on steel for countries including Argentina, Australia, Brazil, Canada, Japan, Mexico, South Korea, the European Union, Ukraine, and the United Kingdom, which had all been exempt. In addition, Trump imposed a 25 percent tariff on aluminum.
The president said that the exemptions were “exploited by China and others with excess steel and aluminum capacity, undermining the purpose of these exemptions.”
U.S. steel companies like U.S. Steel, Nucor, and Cleveland Cliffs will likely benefit from Trump’s new round of tariffs, and all three saw their stock prices jump at the news of the tariffs. On the other hand, American industries—including automotives, farm equipment, electronics, aerospace, construction, defense, and energy production—import 26 percent of the steel and 44 percent of the aluminum they use in manufacturing.
According to data released by the International Trade Administration, which is under the U.S. Department of Commerce, the largest foreign suppliers to the United States are Canada, Brazil, and Mexico for
steel; and Canada, the United Arab Emirates, and Korea for
aluminum.
On Feb. 13, Trump
ordered his administration to develop “a comprehensive plan for restoring fairness in U.S. trade relationships,” which would address discrepancies between U.S. tariff rates and those of America’s trading partners.
Trump cited statistics that U.S. tariffs on ethanol are currently 2.5 percent but Brazil’s tariffs on U.S. ethanol exports are at 18 percent; the EU imposes a 10 percent tariff on imported cars but the United States only imposes a 2.5 percent tariff; and that the United States has a 5 percent tariff on agricultural goods for all its Most Favored Nation (MFN) trading partners, but India’s average MFN tariff is 39 percent, while India also charges a 100 percent tariff on U.S. motorcycles, versus the United States’ 2.4 percent tariffs on Indian motorcycles.
Overall, Trump’s executive order states that “across 132 countries and more than 600,000 product lines, United States exporters face higher tariffs more than two-thirds of the time,” and blames this for America’s persistent trade deficit since 1975, which exceeded $1 trillion in 2024.
According to the World Trade Organization’s 2023 report on “
World Tariff Profiles,” the United States has an average national tariff rate of 3.3 percent on imported goods, which is lower than many of its trading partners. China’s average tariff rate is 7.5 percent, and the European Union’s is 5.1 percent.
Canada’s average tariff is 3.8 percent and Mexico’s is 7.1 percent. This is mitigated by the fact that the United States has a free trade agreement with both countries, which Trump
renegotiated in 2019. America does not have a free trade agreement with Europe or China.
Who Gains, Who Loses?
Advocates for tariffs argue that by making imports more expensive, they will encourage the growth of industries and jobs in America. They point to Japanese and European carmakers who have built plants in the United States to avoid trade barriers.
The picture is complicated by the fact that many products are not produced solely in one country but are often assembled from components made in several countries. Autos are a prime example of this, where a number of components for U.S.-made cars and trucks are manufactured in Mexico and Canada and shipped back and forth between the three countries at various stages of production.
Switching to other suppliers for raw materials or parts can cause costly disruptions in supply lines for American companies, which then adds to the cost of their products.
At the Wolfe Research conference on Feb. 11, Ford CEO Jim Farley warned that tariffs would result in “a lot of cost and a lot of chaos” for American carmakers.
Farley also called for a continuation of EV subsidies passed under the Biden administration, highlighting another concern that economists have about tariffs—that they often lead to industries becoming dependent on government protection and largesse, rather than focusing on efficiencies and consumer needs.
And trade wars have historically proven costly for countries that engage in them.
“Brexit is a clear example of a severing and resetting of trade relations with Europe,” O’Sullivan said. “And it has unambiguously been to the detriment of the UK.”
A February analysis of Trump’s 2018 tariffs on steel and aluminum by the
Council on Foreign Relations reported that while 140,000 jobs were added in steel production, these gains were offset by job losses in the downstream manufacturing industries reliant on steel and aluminum, as prices rose by 2 percent and imports fell by about a quarter.
“Research estimates that Trump’s 2018 tariffs led to the direct loss of 75,000 manufacturing jobs,” the report stated.
Economist and Trump advisor Peter Navarro in a recent CNN
interview said the plan for new tariffs is necessary because the United States consistently runs trillion-dollar trade deficits every year.
“As the great Warren Buffet has pointed out, that’s just shipping our assets offshore and getting us deeper into debt,” Navarro said.
The Decline of Globalization?
O’Sullivan said that another consequence of the tariffs could be escalating tensions between the United States and its allies and trading partners.“It is quite obviously going to destroy America’s relationships with other countries, and that will have long-term consequences for trade and for the dollar,” O’Sullivan said. “I actually think it will eventually mean that other countries and regions trade more with each other than with the United States—that’s probably going to be the first, major outcome of this.”
For the past several years, and particularly since the COVID-19 pandemic disrupted supply links with China, many analysts predicted that the world was shifting from a global market toward regional trading blocs, to ensure more reliable supply chains and to lessen dependence on strategic adversaries.
To date, however, indications are that global trade remains robust.
According to DHL’s 2024
Global Connectedness Report, although trade and investment ties between the United States and China have declined by about 25 percent since 2016, “global connectedness” hit a record high in 2022 and declined only slightly in 2023.
“The resilience and growth of international flows of trade, capital, information, and people in the face of recent crises strongly rebuts the notion that globalization has gone into reverse,” the report states, and despite Europe “decoupling from Russia” since the Ukraine war, “global flows show no general split of the world economy between rival geopolitical blocs.”
Excluding Russia, the DHL report states, trade “is now back roughly to its pre-pandemic level.”
