“Tariffs are the greatest thing ever invented.” — Donald Trump
Written By: Mr. Noor Muhammad
Donald Trump calls himself the “Tariff Man.” With his return to the White House as the 47th President of the United States, the world is once again entering an era of uncertainty, unpredictability, sensationalism, and irrationality.
Countries around the world are preparing to deal with his America First policy. On the surface, this policy appears to support the slogan Make America Great Again. However, in reality, it is weakening America’s own established neoliberal world order.
At the heart of Trump’s America First campaign are tariffs. The world is now witnessing another phase of trade war. This time, it is not limited to the United States and China. Countries such as Mexico, Canada, and members of the European Union are also likely to be affected.
Donald Trump makes little distinction between friends and rivals when it comes to reviving the US economy, reducing trade deficits, and protecting domestic industries. His favorite weapon is tariffs. What happens to the rest of the world and the global economy appears to be of little concern to him.
What Are Tariffs?
In simple words, tariffs are taxes imposed on imports from other countries. Governments usually use tariffs to protect weak industries, raise revenue, exert political pressure, or respond to unfair trade policies by another country.
Generally, developing countries use tariffs to protect their new industries from global competition. Developed economies such as the United States, United Kingdom, and Canada usually support freer trade. For example, a World Bank study in 2021 showed that low-income countries had higher median tariff rates than high-income countries, at 8.5% and 1.4% respectively.
Today, tariffs have become headline news again because of Donald Trump. However, the use of tariffs is not new. They have been used for centuries.
In the past, when free trade was not common, countries had closed borders. They feared losing assets such as gold and silver to other countries. As a result, they used tariffs to stop the outflow of wealth and to become self-sufficient.
According to Douglas Irwin, from 1790 to 1860, around 90% of US federal revenue came from tariffs. This system was known as mercantilism. Instead of trading freely with one another, European powers captured colonies to import raw materials for their industries.
Things began to change after Adam Smith’s book The Wealth of Nations was published in 1776. By the mid-twentieth century, with the United States emerging as the leading world economy, tariffs were gradually replaced by free trade agreements. Countries slowly opened their borders.
This process eventually led to the establishment of the World Trade Organization (WTO) in 1995. Its main purpose was to make global trade more open and reduce tariffs. However, with Donald Trump’s arrival on the world stage in 2017, the clock began to move backwards.
Understanding the Rationale Behind Trump’s Tariffs
During his 2024 election campaign, Trump promised to impose 60% tariffs on China and 20% tariffs on all other countries. Although he has not fully imposed these tariffs yet, his main objective is to use them as a bargaining tool.
Through tariffs, Trump aims to gain more concessions from other countries, support American workers, and strike deals that he considers favorable for US national interests.
Ending the Trade Deficit
The United States has a huge trade deficit with many of its trading partners. In 2024, the US trade deficit was nearly $1 trillion. On the other hand, China had a trade surplus of almost the same amount.
The largest US trade deficits were with:
- China: $295 billion
- European Union: $235 billion
- Mexico: $171 billion
- Vietnam: $123 billion
Trump views the trade deficit as a sign of weakness. He wants to change this situation by restricting the flow of imported goods through tariffs.
Protecting Domestic Industries
In many areas of the economy, the United States is losing ground to other countries. For example, China is leading the world in solar panel production. During his previous term, Trump imposed 25% tariffs on Chinese solar panels.
Similarly, China produces large amounts of steel and aluminum and exports them to the United States. Trump imposed 25% tariffs on steel and 10% tariffs on aluminum on almost all major trading partners.
He stated:
“Our nation requires steel and aluminum to be made in America, not in foreign lands.”
Competing with China
China joined the World Trade Organization in 2001. Since then, the United States has continuously lost jobs and industries to China.
According to the Economic Policy Institute, between 2001 and 2018, the United States lost nearly 4 million jobs to China. During the same period, the US trade deficit with China increased from $83 billion to $420 billion.
If China continues its current economic growth, it may overtake the United States by the middle of the next decade and become the world’s largest economy.
Protecting National Interests
For Trump, illegal immigration and drugs are national security threats. According to Statista, in 2023, around 11 million illegal immigrants were living in the United States. Many of them entered through the southern border with Mexico.
By threatening to impose 25% tariffs on Mexican goods, the Trump administration reached an agreement with Mexican President Claudia Sheinbaum to increase border security personnel to 10,000 at the US-Mexico border.
Similarly, Trump used the threat of tariffs to pressure Canada to control the illegal flow of fentanyl into the United States. In 2022, fentanyl caused around 200 deaths every day. In response, Canada appointed a “Fentanyl Czar” to control its smuggling across the US-Canada border.
Raising Revenue
Economists usually downplay the argument that tariffs are useful for raising revenue. In the United States, trade taxes contribute only around 2% of total revenue.
In 2017, when Trump first imposed tariffs, the US collected $34.6 billion from import duties. This amount later doubled to $70.8 billion in 2019. Trump now aims to collect more than $700 billion through his recent tariff initiative.
Tariffs During Trump’s First Presidency: Success or Failure?
During his first term, Trump imposed tariffs on $360 billion worth of Chinese goods. The Biden administration later kept almost all of these tariffs and continued Trump’s legacy by imposing a 100% tariff on Chinese electric vehicles.
Trump also targeted Mexico, Canada, the European Union, and India. These actions led to retaliation from several countries. However, the conflict with China turned into a full trade war.
China imposed $34 billion in retaliatory tariffs on US goods, especially agricultural products such as soybeans and pork.
The key question is: Were Trump’s tariffs successful?
Economists have mixed views. However, there is a general consensus that tariffs caused more damage to the US economy than benefit.
A study published in the Journal of Economic Perspectives in 2019 showed that the cost of tariffs was passed on to consumers. As a result, American consumers paid an additional $3.2 billion per month in taxes.
Trump’s trade policies also resulted in 245,000 job losses, according to the US-China Business Council in 2021. Tariffs reduced the real level of GDP by 0.5% and raised consumer prices by the same percentage in 2020.
American farmers were among the hardest hit because their exports to China declined by 53%. Tariffs also hurt Republican candidates in the next election because many Republican counties were negatively affected by retaliatory tariffs.
Are Tariffs Good for the US Economy?
The one-word answer is: No.
The United States is the world’s largest economy and imports nearly $4 trillion worth of goods from around the world. The US relies heavily on imports from Canada, China, and Mexico. Together, these three countries account for nearly 50% of all US imports, valued at over $1.3 trillion.
According to Bloomberg Economics, newly imposed tariffs could reduce US imports by as much as 15%.
Tariffs are intended to restrict imports for the benefit of the United States. However, they also increase inflation, affect the job market, and rarely solve the trade deficit problem.
Tariffs and Inflation
Companies that pay tariffs usually pass the extra cost on to consumers.
For example, in 2018, when Trump imposed 50% tariffs on washing machines, their prices rose by up to 12%. As a result, ordinary consumers had to bear the economic burden.
Tariffs and Jobs
Instead of creating new jobs, tariffs often reduce existing ones.
For example, Trump’s 25% tariffs on steel were meant to save jobs for US workers. However, in 2018, the steel sector had around 84,000 jobs. By 2020, this number had dropped to 80,000.
Tariffs and Trade Deficit
Tariffs also failed to reduce the US trade deficit. When Trump came into office, the US trade deficit was $480 billion. When he left office, it had increased to $653 billion.
Impact of Tariffs on the Global Economy
The US-led rules-based world order is under pressure. Trump’s return has pushed America toward economic decoupling and isolationism. His use of tariffs has accelerated this process.
The following are major ways in which Trump’s tariffs are affecting the global economy.
Disruption of Global Supply Chains
For almost two decades, China remained America’s largest trading partner until Mexico replaced it in 2024.
Trump’s tariffs have forced many companies to search for alternatives to China. Countries such as India, Vietnam, Malaysia, Thailand, and Indonesia have benefited from this shift.
For example, Walmart has moved some orders from Chinese factories to India and Mexico. Other US tech companies such as Apple, Google, and Tesla are also exploring alternatives.
However, this process is slow and difficult. China’s cheap and skilled labor market is not easy to replicate in other parts of the world.
Revival of Protectionism
Due to Trump’s unpredictable behavior and protectionist policies, many governments around the world are also adopting protectionism.
This means closing borders, creating trade barriers, and becoming less dependent on other countries. Such actions can create a domino effect. If the United States restricts trade, other countries may also limit the free movement of goods.
This would reduce cooperation on global economic challenges.
Retaliation and Trade Wars
Mahatma Gandhi once said:
“An eye for an eye will make the whole world blind.”
This is also true for trade.
Trump’s tariffs invite retaliatory tariffs from other countries. During Trump’s first term, the trade war was mainly between the United States and China. This time, Canada, Mexico, and the European Union have also been threatened.
Although Trump delayed 25% tariffs on Mexico and Canada until March 4 after gaining some concessions, their leaders have already started preparing retaliation lists.
Uncertainty in the Global Market
A World Bank report in 2024 revealed that a general 10% increase in US tariffs, even without retaliation, would slow global economic progress by 0.2%.
According to American journalist Ben Casselman, during the first week of the Trump administration, tariffs were threatened, announced, cancelled, delayed, or enacted within days or even hours.
Such unpredictable economic measures are usually associated with recessions and international crises.
Ineffectiveness of the WTO
Trump is not a supporter of multilateralism. This is visible not only in his withdrawal from the Paris Agreement and the World Health Organization, but also in his unilateral tariff actions.
The World Trade Organization was created to settle trade disputes and reduce tariffs and trade barriers. However, due to rising trade conflicts, the WTO now appears to be a helpless spectator.
Trump’s Latest Tariff List: The End of the Free Trade Era?
President Trump has called April 2 “Liberation Day” for US trade. This marks a major shift in American trade policy.
He introduced a 10% baseline tariff on all imports, effective from April 5. Other countries may face even higher tariffs, reaching up to 50% in some cases.
This move represents one of the biggest disruptions to global trade norms since World War II.
Countries Exempted from New Tariffs
Mexico and Canada were spared from the new tariffs announced on Wednesday. However, they will still face the 25% tariffs imposed earlier this year.
Cuba, Belarus, North Korea, and Russia were also not subjected to new tariffs because of existing sanctions or already high tariffs.
The following countries will face only the baseline tariffs:
- Ukraine
- Australia
- New Zealand
- Singapore
- Brazil
- Turkey
- Colombia
- Argentina
- El Salvador
- United Arab Emirates
- Saudi Arabia
Countries Hardest Hit by New Tariffs
Several countries will face the highest tariff rates under Trump’s reciprocal tariff regime. These tariffs are designed to address trade surpluses with the United States and high barriers to American exports.
The tariffs, set to take effect on April 9, include:
- Lesotho: 50%
- Cambodia: 49%
- Vietnam: 46%
- Sri Lanka: 44%
- Bangladesh: 37%
- Thailand: 36%
- China: 34%
- Taiwan: 32%
- Switzerland: 31%
- Pakistan: 29%
- India: 26%
- South Korea: 25%
- Japan: 24%
- European Union: 20%
China and Trump’s Tariffs
China, one of America’s largest trading partners and rivals, is facing a total tariff of 54%. This includes a 34% reciprocal tariff and a previous 20% tariff imposed earlier this year.
The actual tariff rate is even higher for many key Chinese exporters because of additional sector-specific tariffs. For example, a 25% duty on automobiles will further increase the burden.
In retaliation, China has announced a 34% tariff on US goods. Escalating trade tensions between the world’s two largest economies have also led Beijing to impose controls on exports of rare earth minerals such as samarium, gadolinium, and terbium to the United States.
India and Trump’s Tariffs
India, a major trading partner in Asia, has been hit with a 27% reciprocal tariff, which Trump described as “discounted.”
Trump has repeatedly criticized India for imposing very high tariffs. He has called India the “tariff king” because of its average 52% levy on American goods.
According to Trump, India charges a 100% tariff on US motorcycles, while the United States charges only a 2.4% tariff on Indian motorcycles.
European Union and Trump’s Tariffs
The European Union is facing a 20% tariff under Trump’s recent move. This is mainly due to the US trade deficit of $235.6 billion with the EU in 2024 and the higher tariffs imposed by the EU on American goods.
This move aims to address the trade imbalance and create a level playing field for US exports. However, the impact of these tariffs may affect several industries and trade relations between the US and Europe.
Counting the Cost of Trump’s Tariffs Against Pakistan
Trump has imposed 29% reciprocal tariffs on Pakistan. According to him, Pakistan imposes a 58% tariff on US goods.
The United States is one of Pakistan’s largest trading partners. Total goods trade between the two countries was valued at $7.3 billion in 2024.
US exports to Pakistan were worth $2.1 billion, while US imports from Pakistan were worth $5.1 billion. This means Pakistan had a $3 billion trade surplus with the United States.
However, this surplus is modest compared to the surpluses of 32 other countries that have much larger trade imbalances with the US.
Trump’s Tariffs and Pakistan’s Textile Industry
Pakistan’s exports to the United States are significant and account for around 18% of the country’s total exports. The textile sector dominates these exports, making up nearly 75% to 80% of the total.
The recent imposition of new tariffs could seriously affect Pakistan’s textile industry.
Key Challenges for Pakistan’s Textile Sector
Economic Stress
Pakistan’s textile industry is already under pressure. New tariffs may increase competition, especially from countries such as India and Bangladesh.
Low-Margin Categories
The textile sector, especially low-margin categories, may face serious shocks due to the new levies.
Increased Competition
Pakistan will need to explore new markets and make its exports more competitive to reduce the impact of these tariffs.
Experts have expressed concern about the possible effects of these levies on Pakistan’s textile industry. To adapt, Pakistan must focus on improving competitiveness and diversifying export markets.
Is China Ready for a Trade War with Trump 2.0?
According to a study published by the Financial Times, in 2023 China exported more to developing countries than to the European Union, United States, and Japan combined. This shows that China is diversifying its export markets.
In 2018, China’s exports to the United States made up 20% of its total exports. By 2023, this share had dropped to 15%, which was only 2.5% of China’s total GDP.
To avoid US tariffs, China more than doubled its exports to Mexico and Thailand between 2017 and 2023. Chinese companies are also investing heavily abroad under the Belt and Road Initiative to maintain local production capacity.
China is also leading in electric vehicles, renewable energy, space exploration, rare earth minerals such as lithium, and artificial intelligence.
DeepSeek, a Chinese AI company, is a recent example. Its rise wiped out $1 trillion from Wall Street in a single day.
This shows that China is better prepared this time. It does not appear ready to give much room to the Trump administration.
In his congratulatory message to President Trump, Chinese President Xi Jinping called for “sound, stable and sustainable” bilateral relations between the world’s two largest economies.
However, this does not mean China wants to appear weak before Trump. Instead, China is playing a long game. Its conciliatory tone suggests that it is open to a deal, but only if its economic interests are protected.
Conclusion
Donald Trump is shaking the world upside down. His authoritarian instincts and unpredictable economic policies have serious consequences not only for Americans but also for people around the world.
T.S. Eliot, the great English poet, once said:
“Everyone gets the experience. Some get the lesson.”
Perhaps Trump 1.0 was the experience, and Trump 2.0 is the lesson.
Now, it is time for the world to learn from that experience.