Donald Trump’s use of tariffs has shaped US trade policy in both his first and second terms. From the 2018 trade war with China to fresh tariffs in 2025: Will Trump’s latest moves bring new economic challenges?
This article reviews the impact of tariffs during the first term of US President Donald Trump (2017-2020) as well as Trump’s second term in office, which started in January 2025. In his first term, Trump imposed tariffs on a host of countries and led to a trade war with China. At the start of his second term, Trump has again imposed tariffs on China and other countries, which could disrupt global trade.
Trump’s first term
In March 2018, Trump imposed tariffs of 25% on steel and 10% on aluminum imports, including China, the EU, Canada and Mexico. These countries responded with retaliatory tariffs against the US. The most significant tariffs were against China, which amounted to $50 billion.
China responded by applying retaliatory tariffs of 15% and 25% on over 100 US products in April 2018. The two countries continued to apply tariffs on each other, which resulted in a full-blown trade war between the US and China, the two largest economies in the world. In 2018, the Trump administration also imposed tariffs on steel and aluminum from Canada and Mexico, but these tariffs were canceled after the parties reached an agreement.
Although the US-China trade war occurred on President Trump’s watch, the Biden administration kept intact most of Trump’s tariffs on China and announced further tariffs on Chinese goods, such as semiconductors, in May 2024.
Read also: Post-Election Forex Trading Landscape: Tariffs, Fiscal Policy, & Interest Rates
The US and China engaged in a nasty trade war during Trump’s first presidency. Will we see a repeat in Trump’s second term?
Trump’s second term
Trump made no secret of his tariff plans during the 2024 US presidential campaign. He proposed a universal tariff on all imports of 10%-20%, a 60% tariff on China and a 25% tariff on Canada and Mexico.
As president, Trump has continued his protectionist trade policy and signed orders imposing tariffs on February 1, 2025, just weeks into his presidency. Trump issued 25% tariffs on Canada and Mexico and 10% tariffs on China, effective February 4, 2025. This was a drastic move, as these three countries are the United States’ top three trading partners, accounting for 40% of all goods imported into the US.
After Trump’s tariff announcement, Canada and Mexico shared that they would impose retaliatory tariffs on the US, an action which threatened to spiral into a full-blown trade war between the three nations, which make up the second-largest trading bloc in the world and, ironically, the second-largest free trade zone on the globe.
Is Trump’s bark worse than his bite?
The unpredictable Trump rescinded the tariffs against Canada and Mexico in record time, as he agreed to give both countries a 30-day reprieve just one day before the tariffs were scheduled to take effect. In return, Canada and Mexico promised to take additional steps to prevent illegal drugs and migrants from crossing into the US. Trump has long complained that Canada and Mexico have not done enough to stem the flow of fentanyl and illegal immigrants across the border to the US.
President Trump has delayed tariffs against Canada and Mexico for 30 days, after winning concessions from both countries. If Trump is dissatisfied with the results and reimposes tariffs, the consequences will be significant to all three countries, as there are no winners in a bruising trade war.
Consequences of tariffs
The tariffs during the first Trump administration meant US consumers were paying more on thousands of imported products. The US Tax Foundation estimated that consumers paid $79 billion worth of new taxes, which in essence was a huge tax increase.
As tariffs make imported goods more expensive, they lead to higher inflation. This would complicate the Federal Reserve’s long and hard-fought battle to contain inflation. Other major central banks face the same problem, as it’s unclear how long the tariff would remain in place and what would be the scope of retaliatory tariffs. In January, Bank of Canada Governor Tiff Macklem said that Trump’s proposed tariffs create “major uncertainty” going forward1.
If Trump decides to reinstate tariffs on Canada and Mexico, US consumers will face higher prices on various items. Canada supplies the US with oil, lumber and steel, while Mexico exports fruits, vegetables and electronics to its northern neighbor. The tariffs would also make many imported automobiles imported into the US more expensive.
President Trump continued his protectionist trade policy at the start of his second term and once again imposed tariffs on China, Canada and Mexico. Trump suspended the tariffs against Canada and Mexico after winning concessions, but it remains to be seen if the US and China will engage in a full-blown trade war, as was the case during Trump’s first term.
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