The idea of “weaponizing trade” (using trade as a foreign policy rather than an economic goal) is not new in itself and it has been used for decades through the imposition of economic sanctions aiming at changing third countries policies.
However, President Donald Trump has brought the idea of weaponizing trade to a whole new level. During its first administration, Trump targeted China as well as strategic industries including steel, aluminum and auto-making. Trump also aggressively used the trade remedies instruments (anti-dumping, countervailing measures and safeguards), not only against China but also against European countries and Russia. Just during his first year in office, eighty-two anti-dumping, countervailing duty investigations were launched in 2017, most since 2001.
If there is something clear, it is that in this second administration, the “tariff guy” is striking back, in a much more aggressive manner. The U.S. is willing to use tariffs to coerce his trading partners in a “we win –you lose” relation that flies in front of decades of diplomatic efforts for building multilateral and bilateral agreements on a “win-win” basis. This rhetoric is clearly expressed in the first trade memorandum: America First Trade Policy:
My Administration treated trade policy as a critical component to national security and reduced our Nation’s dependence on other countries to meet our key security needs. Americans benefit from and deserve an America First trade policy. Therefore, I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.
The America First Trade Policy includes a roadmap to Trump’s second mandate, such as investigations on trade deficits and imposition of reciprocal tariffs, review of bilateral agreements, trade remedies (targeting manipulation of currency, foreign subsidies, affiliations and zeroing), review of multilateral agreements including the World Trade Organization and the use of national security measures against Mexico, Canada and China.
As part of this roadmap, on February 1, 2025, the Trump Administration issued three executive orders imposing significant tariffs at the rate of 25% on all imports from Canada and Mexico, and on all imports from China (and Hong Kong) at the rate of 10%, citing national security concerns related to unlawful migration, fentanyl and synthetic opioid flows. The initial effective date was February 4, 2025, but was postponed until March 4, 2025. China’s tariffs went into effect on February 4, 2025. On February 27, the United States also announced additional 10% tariffs on China which entered into effect on the same day.
On March 4, 2025, the tariffs against Mexico and Canada entered into force, distorting all prior concessions agreed under the United States-Mexico-Canada Agreement (USMCA). On March 5, 2025, Trump announced that auto imports from Canada and Mexico would be exempt from tariffs until April 2. On March 6, 2025, Trump abruptly suspended the tariffs on Mexico and Canada on goods that fall under the preferential treatment, sending the markets out of balance due to ongoing uncertainty. The S&P 500 is now down nearly 7% since mid-February.
Below are some interesting points on these tariffs:
- The U.S. could use the national security exemption under USMCA to impose tariffs without breaching the treaty. The U.S. specifically used the authority under the International Emergency Economic Powers Act (IEEPA), a legislative authority that delegates to the executive the possibility to address national security concerns.
- IEEPA has historically been used as a sanctions authority and it is the first time being used to levy tariffs. IEEPA contains very narrow exemptions (personal communications, personal travel, certain information materials, donations of humanitarian materials) none of which appear to be pertinent to commercial transactions. As a result, tariffs are imposed without prior notice, and there is no exclusion process or exemptions practically available to importers.
- Uncertainty remains as to how many times Trump will extend the exact date on the imposition of tariffs across the board, and how the imposition of tariffs will impact the workload of U.S. Customs and Border Protection.
- Canada, Mexico and China are the three main trading partners of the United States. The U.S. imported approximately $1.3 trillion worth of goods in 2024 from these countries.
- When looking into industries, the most affected ones are automotives from Mexico (Mexico accounts for about one-third of total U.S. imports); Canadian crude petroleum (more than half of U.S. total petroleum imports) and Chinese cell phones (over 40% of total U.S. imports of cell phones). Another sector that will be impacted is the import of computers. As reported, the U.S. has considered special exemptions for some of these industries (e.g. reduction from 25% to 10% of imports of energy products from Canada).
- Canada has proceeded with a first retaliatory wave of $30 billion goods. Canada’s countermeasures list includes products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and certain paper products. In addition, Canada has announced a second $125 billion goods countermeasure which is currently paused in view of the developing circumstances. This second wave includes products such as electric vehicles, trucks and buses, certain fruits and vegetables, aerospace products, beef, pork, and dairy.
- China has responded with tariffs of 15% on some US agriculture imports, including chicken, corn, cotton and wheat, which are set to come in from 10 March. Agricultural machinery and trucks are hit with a 10% tariff. China has also imposed taxes on imports of U.S. LNG (15%) and crude oil (10%) as part of the countermeasures. In addition, China is imposing non-tariff countermeasures. One of these measures is the opening of an antitrust probe against tech-giant Google. China also placed 15 US companies onto its Export Control List, which prohibits Chinese firms supplying American companies with dual-use technologies, and 10 American companies to its Unreliable Entity List. One of the firms affected is US medical equipment maker Illumina, with China announcing a ban on imports of its genetic sequencers. Another firm affected is PVH, holding the brands of Calvin Klein and Tommy Hilfiger. China has also imposed export controls on 25 rare metals.
As tariff war unfolds, we can expect lots of uncertainty and market upheaval. It remains difficult to predict whether all the threats on tariffs will become true over the coming months.
