Introduction
Over the past six months, the topic of Trump tariffs has dominated headlines. This report explores where we stand now, what might happen in the future, and, most importantly, the implications of these tariffs. This paper aims to remain objective, avoiding any political stance or subjective judgment, even though the subject itself is inherently complex and nuanced.
Where are we now?
Trades
Since 2008, China, Mexico, and Canada have been the United States' top three suppliers of goods, with China maintaining the lead until 2023. China consistently accounted for over 15% of all imported goods annually until dropping below this level in 2023, when Mexico became the largest supplier. Together, China, Mexico, and Canada represent over 40% of all U.S. imports. In terms of exports, in 2024, the U.S. exported 17% of its goods to Canada, 16% to Mexico, and 7% to China. Interestingly, the U.S. faces its largest trade deficits with China, amounting to $295 billion, and the EU, amounting to $235 billion. These figures illustrate that the value of imports from these regions far exceeds the value of exports (2024, U.S. Census Bureau).
Latest US Tariffs
As we might have heard, Trump announced steep new tariffs on the United States’ largest trading partners, namely Canada, Mexico, and China, on the 1st of February, 2025. These tariffs include a 10% increase on already existing trade tariffs for China and a 25% additional trade tariff on all imports from both Canada and Mexico. However, while the additional tariffs for Canada and Mexico have not been completely disregarded, they were paused for 30 days just two days after being imposed.
Responses to the Trump Trade Tariffs
Regarding the responses to the trade tariffs (despite the retaliation clauses contained in each order), Canada has announced 35% tariffs on US$107 billion worth of goods, including alcohol, clothing, household appliances, and lumber. As of today, 10th February 2025, Mexico has also announced similar retaliatory tariffs and other measures, although no specific numbers were detailed.
Regarding China’s response to the tariff increases, the country has imposed retaliatory tariffs on $14 billion worth of goods, mostly targeting liquefied natural gas, coal, crude oil, and farm equipment, with levies ranging from 10% to 15%. Additionally, China has restricted exports to the U.S. of five critical metals used in defence industries, solar panels, and electric vehicle batteries.
For the Future
To express how dynamically these tariffs are changing, as of today, the U.S. President has announced that he will impose 25% tariffs on all steel and aluminium imports. These changes are hard to predict and will likely evolve significantly in the coming months based on the responses of the targeted countries.
Potential Reasons for Tariffs
As fentanyl has been the leading cause of death for Americans between the ages of 18 and 45 over the past three years, it could make sense to suggest that the president is using tariffs to apply pressure on drug trafficking. However, one White House official emphasised that these tariffs are not solely about the fentanyl issue but are more broadly focused on border security concerns.
Apart from fentanyl, other reasons could include addressing the U.S.’s trade deficits with the aim of strengthening the U.S. economy by boosting domestic output and making foreign materials more expensive for American buyers. According to the president, “The tariffs are going to make us very rich, and very strong.”
An analysis by Warwick J. M. and Marcus N. for the PIIE suggests that the tariffs on Canada, Mexico, and China would hurt all trading partners. On the “positive” side, it would hurt Canada and Mexico more than the U.S. However, another analysis for the PIIE concludes that the tariffs would cost the typical U.S. household over $1,200 a year.
Lastly, we should consider the implications of the unpredictability of the U.S. as an economic partner. If we were in the position of other countries, would we want to be business partners with an unreliable and unpredictable nation? If we had to choose between China and the U.S., would we see China as the more reliable option?
Is it really the way to go?
The Energy Sector as an Example
The potential impacts and implications of U.S. trade tariffs are puzzling. The greatest question might be whether these tariffs truly help the U.S. economy, create jobs, and bring manufacturing back to the country.
To illustrate how these plans do not always have positive implications for the U.S. economy, we can examine how the most controversial elements of the trade plans have been averted. Tariffs on Canada and Mexico would have raised prices in the U.S. for petrol and diesel, which would, in turn, increase electricity costs and harm domestic manufacturers.
Historically, lower energy costs have helped bring manufacturing back to the U.S. by reducing production costs and making domestic production more economically viable compared to other countries. According to Jeffrey Clark, chief executive of the Advanced Power Alliance, “[tariffs] would be a self-inflicted wound […].”
Effect on the Stock Markets
As a last thought in our paper, we might be interested in considering the effect these tariff wars might have on stock markets. So far this year, we might be surprised to see that the stock markets in Mexico, China, and Europe have all outperformed the S&P 500.
Should we expect this trend to continue throughout the year? Is this market reaction due to the uncertainty and potential consideration of the U.S. president bluffing with tariffs, as he did with the 30-day extension for Canada and Mexico? Or does this reaction mean that even if tariffs are
imposed, they will not adversely affect the profits of public companies? Lastly, could it be that these tariff threats were priced in last year when we first heard about them in October/November?
These questions are tricky to answer, and we might not be able to uncover the underlying truth, as it is likely a combination of all these factors. We leave it to the readers to consider what the proportions might be and what other possibilities could exist.
Finally, there is one thing we can be 100% certain of: there is an increase in market volatility and unpredictability. This is analogous to the question of whether we see the glass as half full or half empty. Volatile markets create opportunities for greater returns, making it easier to find outliers that can brighten our weeks. Alternatively, we could sit back and wait for the market to return to a more predictable state, where we can enjoy slower but steadier returns—if such a time comes anytime soon.
References
Financial Times, “US to raise tariffs on China and push ahead with Canada and Mexico levies.”, March 17, 2025.
Available at: https://www.ft.com/content/b9101226-edc1-4cde-93ec-186bc95021d7
Financial Times, “China imposes retaliatory tariffs on $14bn worth of US goods.” March 17, 2025.
Available at: https://www.ft.com/content/5260a94a-df1e-4c4c-8fa9-afc80506b360
Financial Times, “Predictability is the victim of Trump’s tariff threats.”, February 15, 2025.
Available at: https://www.ft.com/content/b76db3c7-ba1b-4097-ba0f-9b7fec46a12c
Financial Times, “Countries hit by Donald Trump’s tariffs ponder retaliation or negotiation.”, March 16, 2025.
Available at: https://www.ft.com/content/54810a2c-1db7-488b-ab38-7d00c2dcf016
Financial Times, “China and Canada retaliate after Trump trade tariffs come into effect.”, March 4, 2025.
Available at: https://www.ft.com/content/f4353f06-472c-4fd1-8001-f0db1e9adebd
McKibbin, Warwick J., and Marcus Noland. “Trump’s threatened tariffs projected to damage economies of US, Canada, Mexico, and China.” Peterson Institute for International Economics, January 17, 2025.
Available at: https://www.piie.com/blogs/realtime-economics/2025/trumps-threatened-tariffs-projected-damage-economies-us-canada-mexico
Clausing, Kimberly, and Mary E. Lovely. “Trump’s tariffs on Canada, Mexico, and China would cost the typical US household over $1,200 a year.” Peterson Institute for International Economics, February 3, 2025.
Available at: https://www.piie.com/research/piie-charts/2025/trumps-tariffs-canada-mexico-and-china-would-cost-typical-us-household
“2024 Releases.” United States Census Bureau, December 2024.
Available at: https://www.census.gov/data/what-is-data-census-gov/latest-releases/2024.html