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As tariff chaos reigns, what is Trump actually trying to do?

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Trump has threatened to impose the tightest restrictions on US foreign trade since the 1930s. (Paige Taylor White/Photographer: Paige Taylor White)

After promising during his election campaign to put tariffs back at the centre of U.S. economic policy, U.S. President Donald Trump moved swiftly once back in office, announcing significant new import taxes aimed at America’s trading partners.

His tactic — implementing new tariffs and threatening others in an effort to intimidate or gain leverage in other disputes — represents a dramatic shift in a global economy where most major players have sought to reduce trade barriers.

But the execution of Trump’s signature policy has sent mixed signals, as the combination of ultimatums, delays and exemptions leaves many struggling to decipher what exactly he’s trying to achieve.

What has Trump done so far?

The early focus has been on imports from Canada, Mexico and China — the three largest trading partners of the U.S., which together accounted for about 40% of all merchandise trade last year.

When it comes to China, Trump has been more consistent in following through on his threats. As promised, a blanket 10% tax on all Chinese goods imported to the U.S. was introduced in early February, and this was doubled to 20% a month later. He did delay an end to tariff exemptions for “de minimis” items from China and Hong Kong, which covers packages valued at less than $800. The move would have blocked off a tariff-free shipping route — mainly involving air freight — used by Chinese e-commerce companies that are popular with American consumers.

With Canada and Mexico, however, government officials, businesses and investors have been left reeling by Trump’s on-again, off-again strategy. Initially, he said across-the-board tariffs of 25% would be applied on shipments from the two countries on Feb. 4, with a lower 10% rate for energy products from Canada. These levies were then delayed for a month before even kicking in. When they finally took effect, it was for less than two days as Trump announced a further reprieve for a large swathe of goods.

First, after a plea from automakers, imports of vehicles and automotive parts were granted an exemption until April 2 if they comply with the free-trade agreement between the U.S., Canada and Mexico, known as the USMCA. Then, Trump expanded the pause to all imported goods and services covered by the USMCA, backpedaling the tariff war into a “partly off again” phase.

What tariffs could come next?

Against the backdrop of that flip-flopping, the European Union could be the next trading partner hit with tariffs. Trump has threatened 25% duties “on cars and all other things” arriving from the 27-nation bloc, which he has characterized as “formed to screw” the U.S..

Beyond the levies aimed at certain trading partners, Trump has announced sector-specific measures. A 25% tariff on U.S. imports of steel and aluminum is planned from March 12, and the president has indicated that copper could be targeted too. He’s also said he could impose tariffs of around 25% on all automobile, semiconductor and pharmaceutical imports as early as April 2.

That date is poised to be a busy day for tariffs, coinciding with when Trump intends to introduce so-called reciprocal tariffs, which would be customized for each trading partner to offset any perceived disadvantage for American companies. He has warned that Canadian lumber and dairy products could be hit with such reciprocal duties even sooner.

How have countries targeted by Trump’s tariffs responded?

Swift retaliation came from China after the doubling of U.S. levies. It imposed tariffs as high as 15%, mainly on American agricultural shipments, and banned exports to some defense companies. As tensions rise, Chinese Foreign Minister Wang Yi called the U.S. levies “evil” and “two-faced.”

Canada was similarly fiery in its response, with Prime Minister Justin Trudeau saying the trade war is “a very dumb thing to do.” When the blanket tariffs kicked in, the Canadian government announced it would proceed with a sweeping package of countermeasures against U.S.-made products — starting with 25% tariffs on about C$30 billion (US$20.9 billion) worth of goods, including orange juice, peanut butter, wine and coffee. Those remain in place despite Trump’s subsequent climbdown, although Canada has delayed plans for a second round of retaliation targeting big-ticket items like cars, steel and aluminum.

Mexico has adopted a more patient strategy. President Claudia Sheinbaum didn’t rush to engage in tit-for-tat tariffs, instead focusing on negotiating with the Trump administration. She appears to have won her counterpart over for now. When announcing the April 2 postponement for imports from Mexico on his Truth Social platform, Trump said it was “an accommodation, and out of respect for, President Sheinbaum.”

What is Trump trying to achieve with his tariffs?

During his confirmation hearing as treasury secretary in early January, Scott Bessent told senators that people should expect Trump to use tariffs in three ways: to remedy unfair trade practices, which Trump has said would revitalize American industry; to raise revenue for the federal budget, which would be important to help pay for Trump’s plans to extend tax cuts; and to use as a lever with foreign powers in place of sanctions, which Trump believes have been overused.

Boosting American manufacturing:

Trump has talked about using tariffs to revitalize manufacturing and stop the U.S. from getting “ripped off” by other countries due to trade imbalances. He’s floated the idea of using a mix of tariffs and incentives, such as expedited permitting approval, to entice firms to build their facilities in the U.S.

“We’re going to bring the companies back,” he said during an interview with Bloomberg Editor-in-Chief John Micklethwait at the Economic Club of Chicago in October. “We’re going to lower taxes still further for companies that are going to make their product in the USA. We’re going to protect those companies with strong tariffs.”

Trump imposed several rounds of tariffs on Chinese goods during his first term and said he was just getting started using them to remake the U.S. economy when the Covid-19 pandemic hit and scrambled his plans.

Howard Lutnick framed the tariff plan as a means to regain the world’s respect during his confirmation hearing as commerce secretary, telling senators that U.S. allies and adversaries alike “are taking advantage of us, they are disrespecting us and I would like to see that end.” On March 7, for instance, Lutnick spoke virtually to a forum in India, saying that in addition to addressing India’s high tariffs, bilateral trade talks with the U.S. would also involve thorny issues for Washington like the South Asian nation’s purchase of Russian weapons and its involvement in a BRICS push to dethrone the dollar.

Raising revenue:

The revenue brought in by tariffs could help pay for the tax cuts promised by Trump. He wants to extend reductions in income taxes that were approved in 2017 during his first presidency, many of which are due to expire at the end of 2025. He’s even put forward proposals to expand these tax breaks — for example, by exempting workers’ tips and social security earnings from taxation. He also aims to slash the corporate tax rate to 15%, from 21%.

These tax measures are expected to lead to a loss in government revenue of $4.6 trillion over 10 years. “Tariffs can easily pay for that,” Peter Navarro, a Trump trade adviser, told CNBC on Jan. 31. “President Trump wants to move from the world of income taxes and countless IRS [Internal Revenue Service] agents to the world where tariffs, like in the age of [President William] McKinley, will pay for a lot of government that we need to pay for and lower our taxes.”

Wielding a tool of diplomacy:

Trump has become skeptical of sanctions because they drive other countries away from the dollar, and sees tariffs as a way to gain leverage in negotiations, according to Bessent.

A brief standoff with Colombia in January — in which Trump threatened to impose tariffs over the country’s initial refusal to accept repatriation flights for undocumented migrants — provided a glimpse of the U.S. president’s strategy. Trump pulled back on his threat after an agreement was reached between the two countries and Colombia sent military planes to the U.S. to pick up dozens of nationals.

Trump’s tariff orders on imports from Canada, Mexico and China are intended to address what he calls a “threat to the safety and security of Americans, including the public health crisis of deaths due to the use of fentanyl.” The decision to twice delay the tariffs on Mexico and Canada came after their governments agreed to step up efforts to address illegal migration and drug trafficking at the U.S. border, and Trump was satisfied that progress was being made.

How radical is Trump’s approach?

Some preexisting U.S. tariffs on goods from China, Canada and Mexico already approached or even exceeded the levels Trump set. But these only apply to select categories of goods. Levying them across the board is a major departure.

The preexisting, relatively high tariffs cover such a small portion of U.S. trade that the country has had a trade-weighted average tariff rate of 2% for imported industrial goods, according to the Office of the U.S. Trade Representative. That’s calculated by dividing the total value of imports by the total tariff revenue. These goods make up 94% of U.S. merchandise imports by value, and half of them entered the nation duty-free.

The latest Trump tariffs are far more substantial than those imposed during his first presidency — bringing American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale.

It said this would lead to as much as $2,000 in additional costs for each U.S. household. It also will mean significantly slower economic growth in the U.S., especially if other countries retaliate, according to a report published March 3.

Is Trump’s approach new?

The U.S. taxed imports heavily for much of its history before largely abandoning the policy beginning in the 1930s, as government leaders embraced the idea of free trade.

A big reason for that was the reaction to the Smoot-Hawley Tariff Act of 1930, which led to an estimated increase of roughly 20% in average import duties. The law provoked retaliatory tariffs from foreign governments, resulting in a drop in global trade and a deepening of the Great Depression. That debacle kicked off a multidecade period that saw the rise of free trade, culminating in the creation of the General Agreement on Tariffs and Trade in 1947 and eventually the formation of the World Trade Organization in 1995. During that time in Washington, the Republican Party steered clear of tariffs.

They made a comeback during Trump’s first presidency, when he turned to tariffs in an effort to revitalize American industry and counter what the U.S. regards as China’s unfair trade practices. President Joe Biden kept the trend going.

How does China figure into all of this?

For decades, the belief in free trade was backed by bipartisan consensus in the U.S. and by multinational corporations that wanted access to cheap and efficient supply chains overseas. China’s ascension as a global economic power broke that consensus.

Admitted to the WTO in 2001, China gained greater access to global markets even as its critics say it violated the letter and spirit of free-trade rules — for example, by subsidizing its industries and compelling foreign companies operating in China to hand over their know-how. A number of researchers have concluded that competition from China helped keep inflation across the world low for years but triggered a decline in factory employment as the East Asian nation became the world’s dominant producer.

During Trump’s first term, his administration imposed new tariffs on Chinese imports that were worth about $380 billion in 2018 and 2019. Biden maintained those levies and raised more of them in 2024 on goods worth an additional $18 billion.

The new enthusiasm for tariffs has spread to the European Union. In October it introduced duties as high as 45% on electric vehicles from China.

Can Trump raise tariffs without congressional approval?

Yes. Through a number of statutes, the U.S. Congress has empowered the president to modify tariffs to address a variety of concerns. These include a threat to national security, a war or emergency, harms or potential harms to a U.S. industry, and unfair trade practices by a foreign country.

While companies can try to fight higher tariffs in court, because of past deference given to presidential powers, such challenges “would face a steep uphill climb,” according to an article posted by the Center for Strategic & International Studies and co-authored by Warren Maruyama, a former general counsel for the Office of the US Trade Representative.

How do tariffs work?

A tariff, also known as a duty or levy, is usually calculated as a percentage of a good’s value (as declared during the customs clearance process) and assigned according to the item’s country of origin. That gets complicated when a product is assembled from parts that cross multiple borders, such as a car with U.S.-made components that’s put together in Mexico and reimported to the U.S. A tariff can also be levied as a fixed amount on each item.

Goods that cross borders are given numeric codes under a standardized nomenclature called the “international harmonized system.” Tariffs can be assigned to specific product codes relating to, for example, a truck chassis, or to broad categories, such as electric vehicles. Customs agencies collect tariffs on behalf of governments.

Who pays tariffs?

Tariffs are paid by the importer, or an intermediary acting on the importer’s behalf, though the costs are typically passed on. Trump argues that, ultimately, it’s the exporter who effectively ends up shouldering the cost of a tariff. Studies have shown that the burden is more diffuse.

The foreign company that makes the product may decide to lower its prices as a concession to the importer, or it may invest in building a factory elsewhere to sidestep the tariff. Alternatively, the importer — such as Walmart Inc. and Target Corp., two of the biggest importers in the U.S. — could raise the price of the item to protect its profit margin, meaning the consumer shoulders the tariff cost indirectly.

How can tariffs affect the economy?

It can be difficult to sort through the economic effects of tariffs. They can stimulate employment by attracting investment as companies try to get around tariffs by moving factories to the taxing country. At the same time, they can provoke retaliatory tariffs that cost jobs in other parts of the economy.

When a country imposes import tariffs, domestic manufacturers don’t necessarily leap in to start making the products affected. And if the nation has no alternative domestic supply of the goods concerned, then prices of those goods can go up.

Daniel Flatley is a Bloomberg business reporter in Washington, DC covering U.S. national security with a focus on business issues.

Brendan Murray is based in London, U.K. and reports on trade for Bloomberg.

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