WASHINGTON — When Donald Trump initiated the most significant trade war the United States has seen since the 1930s during his first presidential term, his impulsive mix of threats and import duties on trading partners sparked considerable disorder and attracted significant disapproval from mainstream economists who advocate for free trade principles.
However, the impact on the U.S. economy was minimal in either a positive or negative sense. Inflation remained stable, and the economy continued to expand in line with previous trends. America’s substantial trade deficits, which were central to Trump’s grievances, proved resistant to both his rhetoric and his tariffs; these deficits grew even larger.
Looking ahead to a potential second term, Trump seems to be envisioning a new trade war with more extensive goals and finds himself in a far more precarious economic climate this time around. His proposals include imposing 25% tariffs on goods from Mexico and Canada, along with a 10% tax on imports from China, and plans to extend these measures to the European Union, which could jeopardize economic growth and drive consumer prices up in the U.S.—thereby undermining his campaign promise to curb inflation, an issue faced by President Joe Biden.
These tariffs will ultimately be borne by U.S. importers, who will likely transfer the burden onto consumers through elevated prices. Trump himself has acknowledged the possibility of negative consequences from such actions, stating, “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
Currently, some of the tensions are momentarily on hold. Trump recently chose to delay tariffs on Canada and Mexico for 30 days to facilitate negotiations, given that these countries have agreed to take further action to curtail the influx of illegal substances and undocumented migrants into the U.S.
Nevertheless, he proceeded to implement the 10% tariffs on China. In response, Beijing promptly retaliated by levying tariffs on U.S. exports, including coal and large vehicles. Additionally, restrictions are being placed on exports of essential minerals and an antitrust probe into Google has been launched.
Trump views tariffs—taxes levied on imports—as a potent tool capable of revitalizing manufacturing in the U.S., generating revenue for the government, and coercing foreign nations to comply with U.S. demands. During his previous term, he enforced tariffs on a wide range of Chinese products and imposed duties on imported solar panels, washing machines, steel, and aluminum. While these measures may have led to price increases on specific items, they had a negligible effect on overall inflation, which remained modest. Furthermore, they did little to restore lost factory jobs.
Economists concur that a second round of Trump-led trade conflicts could have significantly greater implications than the first. Trade analyst William Reinsch from the Center for Strategic and International Studies commented, “That was then. This is now,” highlighting the added complexities of the current situation. This uncertainty was evident when the stock market experienced a sharp decline on Monday in anticipation of the tariffs, only to recover following news of the 30-day pause concerning Canada and Mexico.
In his first term, Trump’s trade advisors carefully curated the list of tariffs, aiming to sidestep immediate impacts on consumers by primarily focusing on industrial goods instead of products found on the shelves of retail giants like Walmart. This strategy helped to mitigate the overall economic effects of the tariffs.
In contrast, the proposed tariffs this time appear more comprehensive. Although he paused certain tariffs on Canadian energy to 10%, Trump is evidently aware of the degree to which northern and midwestern states rely on energy imports from Canada.
In Boca Raton, Florida, the toy company Basic Fun is forecasting increased prices and a decline in profits in preparation for the upcoming tariffs. Approximately 90% of its toys, including Tonka and Care Bears, are sourced from China. CEO Jay Foreman has indicated that the price of the Tonka Classic Steel Mighty Dump Truck is anticipated to rise from $29.99 to as much as $39.99 later this year.
Five years prior, toys were exempt from the China tariffs during Trump’s administration. However, Foreman remarked, “We are now just going to forecast a lot of money draining out of the company.” In addition to the threats targeting Canada, Mexico, and the EU, Trump has proposed a worldwide tariff imposing a 10% to 20% levy, making it increasingly challenging for companies to avoid his tariffs.
Many companies successfully circumvented the original tariffs by relocating production to places like Mexico or Vietnam. Under the current threat of broader tariffs, suppliers worldwide could find themselves enveloped in Trump’s targeting. Mary Lovely, a senior fellow at the Peterson Institute for International Economics, remarked that this sends a clear indication that “no place is safe.”
Compounding the concerns is a clause that introduces retaliation into the tariff orders Trump signed. If other nations respond with their own tariffs—following China’s example—Trump is likely to hit back with additional tariffs, escalating the situation into a potentially spiraling trade conflict of retaliatory measures and countermoves, said Eswar Prasad, professor of trade policy at Cornell University.
A critical change in the current economic landscape is also present. Six years ago, inflation was at an all-time low—in fact, the Federal Reserve had voiced concerns that it was too low. Trump’s first-term tariffs did not affect this. Currently, inflation has become a pressing issue. Though prices have decreased from their four-decade high levels reached in mid-2022, inflation still remains above the Fed’s 2% goal without significant improvement in recent months. Trump’s proposed tariffs could reignite inflationary pressures and compel the Federal Reserve to reconsider or delay the anticipated interest rate cuts this year. This may prolong high-interest rates into 2025, increasing mortgage and loan rates and stifling real growth, according to economist Brian Bethune from Boston College.
As of now, businesses, investors, and international trading partners nervously await Trump’s subsequent moves. Will he reinstate tariffs on Canada and Mexico after the 30-day grace period? Will he truly take action against the EU? Or enforce his threat of a universal tariff? A local resident in Raleigh, North Carolina expressed skepticism as he shopped, noting that tariffs contradict Trump’s pledges to minimize inflation. “If it goes up 25%, it’s not the government, it’s not the Mexican people paying for it. Who pays for it? Us.”
Trump’s approach to tariffs poses greater economic threats than in his previous administration.
