President Trump, tariffs and trade

At the beginning of April, President Trump announced significant tariff increases on imports coming into the United States. These measures have caused concern around the world. Amid uncertainty about the numbers and final effects, trade partners are trying to negotiate exemptions and reductions.

This is a very complex issue with potentially major economic and political impacts. This post offers an overview of the situation and summarizes some ideas about its causes. The next one here analyzes the effects, particularly for Latin American countries.

What’s Happening with Tariffs?

On April 2, the global economy experienced another shock. On what was called «Liberation Day,» President Trump signed several executive orders that significantly increased U.S. tariffs on imports from a large number of countries. A base tariff of 10% was established (on top of existing ones). Additionally, higher tariffs were imposed on specific countries and regions (145% on China, 20% on the EU, 25% on Mexico and Canada). Although this measure had been hinted at during the campaign, the increases were far larger than expected. Furthermore, other actions were initiated (such as investigations into imports of pharmaceuticals and semiconductors) that could lead to the implementation of non-tariff barriers. Major stock markets responded with sharp declines.

Fortunately, subsequent announcements have softened the initial shock. Tariffs have been suspended for 90 days, until July 9, 2025, and some agreements are being reached with individual nations, such as the United Kingdom and China. Under the recent deal with China, the U.S. is reducing tariffs on Chinese products from 145% to 30%, and China is lowering tariffs on American goods from 125% to 10%.

Almost all experts agree on the harmful effects of tariffs. History shows that no one wins trade wars—they harm everyone, as affected countries retaliate by imposing their own tariffs. Protectionism leads to reduced international trade, increased uncertainty, delayed investment decisions, decreased business activity, and slower GDP growth.

A Bit of History: Why Are Tariffs Increasing?

As shown in Figure 1, average tariffs around the world have been falling progressively since 1990, narrowing the gap with the much lower U.S. tariffs. Meanwhile, international trade flows increased significantly. However, in the past decade, this process has slowed for most countries. In the U.S. specifically, average tariffs started to rise from 2016, although they still remain below the global average.

In his first term, Donald Trump pursued a protectionist economic policy, especially targeting China, and rolled back various free trade agreements like NAFTA (in effect since 1994 between Canada, the U.S., and Mexico) and the TPP.

The Trans-Pacific Partnership (TPP) was a proposed free trade agreement signed in 2016 among Pacific economies including Australia, Canada, Chile, Japan, Malaysia, New Zealand, Vietnam, Singapore, and the U.S.—ironically led by the U.S. It aimed to counter China’s export potential by boosting trade among member countries. However, due to domestic political opposition, the U.S. did not ratify the agreement and withdrew in January 2017. The remaining countries renegotiated and implemented a new agreement in late 2019.

Figure 1. Evolution of tariffs over time

Trade Liberalization and Its Uneven Effects

Trade liberalization over recent decades benefited most countries. Many nations—especially in Asia (e.g., China, India, Southeast Asia)—experienced significant export growth, which spurred development. Over a billion people emerged from poverty in under 30 years. In 1990, more than 2 billion people earned less than $2.15/day (PPP); by 2019, this number had dropped to under 691 million, according to World Bank data available here. Incomes improved along with other human development indicators like life expectancy, access to clean water, and literacy.

However, globalization also had negative effects—especially in developed regions like North America and Europe. Trade liberalization increased competition and encouraged companies to relocate operations to more competitive areas. Markets became saturated with cheap goods while European developers had to compete with peers in India, Vietnam, or China, and Brazilian manufacturers with French or Italian ones.

In developed countries, the perception grew that globalization had destroyed manufacturing jobs and suppressed wage growth. As the IMF noted in its April 2025 World Economic Outlook available here, this perception may be partly accurate—though digitalization and process optimization also played a role. Inflation beginning in 2021 significantly reduced workers’ purchasing power, deepening dissatisfaction.

In the U.S., a sense of unfairness grew: free trade deals seemed to penalize American citizens while countries like China engaged in unfair practices such as dumping (selling goods below production costs) with impunity. Some voices also called for reshoring strategic goods production (e.g., chips, steel) to protect national security. Trump capitalized on these sentiments, promising to defend American manufacturing through protectionism.

During his first term, Trump imposed tariffs and sanctions to reduce the trade deficit and revive domestic manufacturing. President Biden did not reverse the protectionist trend; instead, he increased tariffs on Chinese semiconductors and electric vehicles. Chinese exports to the U.S. declined and were replaced by goods from countries like Korea, Vietnam, and Mexico, partly due to Chinese firms relocating production.

For his second term, Trump has announced continued protectionist measures to boost the domestic economy.

The Fight Against Dumping and Intermediate Goods Trade

Some of the U.S. complaints about Chinese dumping are legitimate. China operates with excess industrial capacity and heavily subsidizes its companies. The OECD estimates that Chinese government support to the steel industry is 10 times that of OECD countries and 5 times that of non-OECD countries. These subsidies allow inefficient companies to export cheap products, depressing international steel prices.

Combating dumping isn’t easy. Proving that China is subsidizing its industry is complicated. Moreover, the World Trade Organization (WTO), which governs international trade, prohibits discriminatory practices against member states—China has been one since 2001. In 2021, the U.S. and EU tried to counter dumping by applying higher tariffs to carbon-intensive goods from state-influenced economies like China. These measures didn’t succeed.

Tariffs are also ineffective in today’s interconnected economies. Take steel and aluminum—industries where the U.S. imposed tariffs in 2018 and raised them to 25% in March 2025. Some studies show these tariffs hurt U.S. industry.

As the Center for Strategic and International Studies notes, the U.S. steel industry employs about 80,000 workers, while industries that use steel employ 12 million. Tariffs help the former at the expense of the latter. The net effect is likely negative due to the sheer size of steel-using industries.

Global production today is distributed across countries to leverage comparative advantages. A large portion of international trade involves intermediate goods, so tariffs often affect the final product. The recent tariff increases on goods from Canada and Mexico threaten tightly integrated supply chains—particularly in North American auto manufacturing. Major U.S. carmakers—Ford, GM, and Stellantis—have expressed concern but so far only secured limited exemptions.

Other tariffs increase the cost of building data centers (crucial today) or negatively impact entire value chains—like those on semiconductors. Companies like Apple, Nike, and Amazon have also warned of tariffs raising product prices in the U.S., affecting both consumers (via higher prices) and producers (via lower margins).

How Should the World Respond?

Given this scenario, U.S. trade partners face two main options: retaliate with similar measures or seek to de-escalate. The first option has limited potential. There is broad consensus on the long-term benefits of free trade and the damaging effects of protectionism. Thus, the second path—negotiation and agreements—seems more reasonable.

This is the EU’s current strategy: cautious, pro-free trade, and focused on dialogue. Experts recommend a three-part strategy:

Bilateral agreement with the U.S., possibly including deregulation of certain sectors, as advised in the Draghi Report.
Reform of the WTO alongside allies opposing protectionism.
Expansion of preferential trade agreements with Mercosur, the UK, Mexico, India, and Malaysia.

The IMF, in its World Economic Outlook, recommends starting with domestic reforms: fiscal stability and productivity-enhancing changes—particularly for areas like the EU. It also advises the U.S. to reduce public spending, its deficit, and debt, and calls on China to scale back industrial policies and encourage domestic consumption.

In Conclusion…

International trade thrives on predictability and trust among partners. Aggression and uncertainty are counterproductive. The priority now must be cooperation and, in the medium term, reducing tariff and non-tariff barriers.

Trump believes the world has taken advantage of U.S. openness and wants to reverse this via protectionism. But in a hyper-connected world, protectionism backfires—hurting American producers and slowing global growth. Raising tariffs may not be a wise option.

Fortunately, this perspective seems to be gaining traction in the White House. Tensions are gradually easing, and agreements are being reached. Still, uncertainty remains high, and every step must be carefully considered. Let’s hope the storm calms and reason prevails.