Donald Trump has announced plans to impose tariffs on China, Mexico, and Canada from the first day of his presidency.
He stated that he would sign an executive order imposing a 25 per cent tariff on all goods from Mexico and Canada after being inaugurated on 20 January 2025.
The former president claims the measures against the USA’s two neighbours will encourage them to crack down on illegal immigration into the US.
In addition, a 10 per cent tariff would be levied on China until its government takes stronger action against fentanyl smuggling into the US, Trump says.
If enacted, these tariffs would mark a continuation of his combative first presidency, and could trigger an all-out trade war with some of the US’s closest allies.
While Trump claims the measures will protect jobs and generate revenue, experts argue they are likely to push up prices for US consumers, with ripple effects on the global economy.
1. Tariffs will push up prices for US consumers
Trump imposed numerous tariffs during his first term, many of which were retained by Joe Biden. While Trump has claimed tariffs penalised Chinese exporting companies, economists suggest that most of the economic burden was borne by US consumers, particularly in the short term.
This is because a tariff is essentially a domestic tax levied on goods as they enter the country.
For example, an electric car imported from China to the US with a value of $50,000 would face a $5,000 tariff under a 10 per cent rate. However, the US importer, not the Chinese exporter, pays the tariff. To recover the costs, importers often raise prices, passing the additional expense on to consumers.
America’s healthcare industry has warned these measures could lead to higher costs for medicines and fuel.
Aidan Robertson, a medical analyst at GlobalData, said: “Companies will be forced to increase prices to offset losses incurred by the proposed tariffs. Additionally, this may cause supply chain disruptions, reducing accessibility to medical devices and inflating costs due to heightened demand.”
Economists also point out that, over time, Chinese exporters may lower their prices to maintain competitiveness in the US market, which could hurt economic output in both China and America.
2. There is little evidence of tariffs protecting US jobs
Trump’s primary justification for introducing tariffs is that they save American jobs. He has also claimed they would help the US “take other countries’ jobs.”
Theoretically, tariffs could force American firms to manufacture products domestically due to the higher cost of imports, thereby increasing employment.
However, Michael Henry, associate professor in economics at the University of Birmingham, disagrees: “Evidence has shown that Trump’s tariffs on steel and automobiles left American consumers worse off—particularly those using steel as an intermediate product, such as in washing machines, where prices rose significantly.”
“Some manufacturers fear they’ll have to leave the US, as tariffs negatively affect production and make them less competitive globally.”
A study by Moody’s Analytics supports this, finding that Trump’s trade war with China resulted in 300,000 fewer jobs being created in the US.
Additionally, a rise in consumer prices due to tariffs could lead to reduced spending in industries such as hospitality, travel, and entertainment, ultimately causing further job losses.
3. Tariffs raise revenue – but Trump also wants tax cuts
Since Trump imposed tariffs, the US has reportedly collected more than $257bn in revenue, according to ING. While customs duties contribute to the federal budget and fund public services, Trump also plans to extend his tax cuts, which are due to expire in 2025. The proposed tariffs will be nowhere near sufficient to address America’s $36trn national debt, experts believe.
4. Europe could be next
The president-elect has previously threatened a universal 10 per cent import tariff on all foreign-made goods. Despite the current focus on China, Mexico, and Canada, European stocks fell in early trading after the announcement. Car manufacturers, already struggling in Germany, were particularly affected. Some analysts warn that the euro could fall to parity with the US dollar for the first time since 2022 if a transatlantic trade war ensues.
Professor Henry said: “Europe’s tariffs on steel and automobiles have already cost 186,000 jobs, and further measures could harm European production.” However, he added that the EU and US could still align strategically to limit China’s market influence.
5. Trump could coerce UK into an unfavourable trade deal
Although Trump has not directly threatened the UK, London’s FTSE100 fell 0.3 per cent, and the pound weakened to $1.26. According to Politico, Sir Keir Starmer’s Government is prepared to retaliate if universal tariffs are imposed.
In response to Trump’s previous tariffs on European steel, post-Brexit Britain relied on EU trade measures. These could be reactivated without an investigation by the UK’s Trade Remedies Authority, as the tariffs were indefinitely suspended in 2022 rather than removed.
If the UK is targeted, Trump may seek a bilateral trade deal, which could place Britain in a weaker negotiating position.
Professor Henry warned: “Tariffs on the UK economy will negatively affect producers. A trade deal could allow US exporters to sell products at lower standards with less regulation, forcing the UK to make significant concessions.”
For now, the UK Government has avoided discussions of a tit-for-tat trade war, even if tariffs on British imports strain the “special relationship” further.
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