Based on his promises, his history, and his advisors, it is certain that president-elect Donald Trump will enact the most protectionist trade policy the United States has had in nearly a century. At the same time, tremendous U.S. uncertainties surround the policy, including the timing, extent, and duration of the tariffs, as well as the retaliation expected from other countries. This comes in the context of significant shifts in the trade panorama outside the United States. U.S. companies should review how they will be affected, what they can do to mitigate the risks, how they might seek to benefit, and what their public stance should be.
Trump Will Raise Tariffs
Trump has advocated for tariffs since the 1980s (when the “Japan threat” included Japanese purchases of symbolic New York real estate). During his first term, he raised tariffs on a large share of imports from China and on aluminum and steel globally. During his 2024 campaign, Trump promised (at least) 60 percent tariffs on all imports from China and 10 percent or 20 percent global tariffs (all imports from all countries). He also threatened tariffs against specific companies, such as John Deere, that are considering shifting manufacturing abroad.
In recent weeks, president-elect Trump has announced his intention to impose tariffs on Mexico, Canada, and China in order to “oblige’ them to address migration and drug trafficking. He also announced possible 100 percent tariffs on the BRICS nations—India, China, Russia, Brazil, and South Africa—and possibly others if they create an alternative currency to the dollar for international trade. Additional tariff threats are certain to come, as Trump views them as the primary tool for “diplomatic negotiations.”
Meanwhile, Congress has clearly moved in a more protectionist direction in both parties. There are proposals to eliminate World Trade Organization (WTO) benefits for China (withdraw PNTR), creating a new list of specific tariffs for China. And there are proposals—supported by some of Trump’s key advisors—to empower the president to impose “reciprocal tariffs,” at the same level as foreign countries assign tariffs to specific products.
A variety of legal tools can be used to raise tariffs. The president can unilaterally apply tariffs in some cases using Section 301, as he (and Biden) did against China. His prior use of Section 232 (National Security) tariffs on steel and aluminum created a precedent. He can invoke the International Economic Emergency Powers Act by declaring an economic emergency to impose global tariffs. Each of these tools can be challenged in court or by Congress, and in some cases, they are supposed to be applied only after a full review, normally taking 9–12 months. In addition, of course, Congress can raise tariffs—this approach would be necessary to remove Permanent Normal Trade Relations (PNTR) from China and probably to enable reciprocal tariffs.
Uncertainties
All of these approaches raise uncertainties in key details—and Trump considers uncertainty a feature rather than a flaw of his approach. It is unclear, for example, how quickly any of these proposals will be implemented—will he follow the existing process guidelines or ignore them and fight the court challenges? How will the courts decide, and how long will those cases take? How high will the tariffs be? Will there be a formal process for “exemptions” from those tariffs? Will the global tariffs truly be applied to everyone, including Free Trade Agreement partners, just to countries that have trade surpluses with the United States or just threatened and then negotiated away with some countries? Will Congress attempt to roll back any of the tariffs (this seems unlikely with the GOP majorities, but that could change in two years)? How and when will countries retaliate? Some will no doubt seek negotiations, but others will certainly respond in other ways, likely including tariffs of their own on U.S. exports.
Motivations
Part of the uncertainty reflects the variety of motivations Trump and his advisors have expressed. In some cases, the objectives overlap, but in others, they conflict. Key motivations identified include:
- Encourage onshoring: Trump should eliminate the benefits for companies to build abroad in order to sell into the United States. This responds to a belief—sometimes correct—that U.S. companies “move” factories overseas when they can make products more cheaply there to sell into the U.S. market. This is considered a rationale for higher across-the-board tariffs, as well as tariffs threatened against specific companies or sectors.
- Protect U.S. producers: The Trump administration should also support domestic manufacturing even when uncompetitive against foreign competition. This apparently was, for example, the main goal of the steel tariffs in 2017. The tariffs allow U.S. producers to raise their prices and thus stay in business without significant restructuring. Note that this also raises costs for U.S. producers downstream and thus makes U.S. exports less competitive (and U.S. consumers unhappy).
- Reduce the trade deficit both bilaterally and globally: In Trump’s view, bilateral deficits denote “losing,” and global deficits reflect unfair foreign practices, such as artificially lower exchange rates. Tariffs can, in some cases, alter bilateral trade balances, but when applied to only one or a few countries, they simply shift the deficit geographically. Global tariffs could affect the overall trade deficit in some circumstances—but that is not assured as the dollar exchange rate and macroeconomic conditions play major roles in the trade deficit.
- Reciprocity and fairness: A frequent example cited is that U.S. auto tariffs are 2.5 percent while EU auto tariffs are 10.0 percent. So, the United States would raise its tariffs on those specific products for those specific countries. It is not clear whether these tariffs would apply even for products not made in the United States (e.g., coffee and cacao). This would result in a different tariff schedule for each partner country, creating many complications for U.S. Customs and for firms planning supply chains. Note that reciprocity has, in fact, been a feature of most trade negotiations: the United States asked partners to reduce tariffs for products that U.S. industry thought it could sell abroad, while partner countries similarly sought reductions in U.S. tariffs for products where they saw potential markets. Meanwhile, the United States maintains high tariffs to protect politically favored domestic markets (e.g., sugar and light trucks)
- Raise revenues: Trump’s claims that tariffs will “pay for” his tax cuts are unrealistic, but tariffs almost certainly will be part of the negotiations in and with Congress around the major tax bill expected in 2025. This objective would require that tariffs not be raised to a level that would exclude imports.
- Leverage for trade deals: The threat of tariffs, or their application, could be used to encourage negotiations for market access, an example being the Phase I agreement with China. Note that this would run counter to the “revenue raising” goal and could be complicated if it affects revenues that are codified in the expected 2025 tax legislation. A negotiating approach could also offer opportunities for U.S. exporters to work with the Trump administration to address specific trade barriers that limit U.S. exports.
- Decouple from China: There appears to be growing support in Congress for “decoupling” economically from China by raising tariffs to a level that makes bilateral trade unfeasible. Trump has not publicly made this a goal—no trade would also mean no revenues from tariffs.
- Leverage for political deals: Trump’s recent threats to raise tariffs on Mexico, Canada, and China unless they address drug trafficking and migrant flows is an example. Perhaps the threat against BRICS countries considering an alternative currency is another. In both cases, however, it is likely that this is more of a “signaling” tool than an actual basis for specific negotiations. If these threats are pursued after Trump takes office, it is not clear how they would be implemented without blowing up the U.S.-Mexico-Canada Trade Agreement, USMCA, which Trump negotiated during his first administration to replace NAFTA. Similar threats are likely to be made against other countries that provoke the president’s ire, although the legal basis could be challenged. Just how often the same threat of tariffs can be used for different objectives may arise: if Mexico strikes a “deal” on migration, in return for Trump dropping that tariff threat, what happens when next month he threatens tariffs again unless Mexico reduces its bilateral trade surplus with the United States, and revives the threat a month later unless Mexico bans Chinese auto investments.
- Labor, Environment, Human Rights: In contrast to the Biden administration, Trump is unlikely to base trade policies on “social” objectives. However, his administration and Congress are likely to give lip service to these goals in situations where they build support for his other objectives.
Dollar Valuation
Strengthening or weakening of the U.S. dollar against the currencies of major trading partners will have an impact on the effectiveness of tariffs—either supporting or undermining the goals outlined above. There are arguments suggesting that his policies might lead to further strengthening of the dollar—other currencies might weaken in the face of lost exports, and investors might flock to the United States for higher interest rates or as a refuge against global turmoil. Some countries might adopt policies designed intentionally to depreciate their currencies. A strong U.S. dollar could mean, inter alia, the United States—maintains or even increases imports despite the tariffs and could shield U.S. consumers from some of the price increases caused by the tariffs. It would also make U.S. exports less competitive. So, while the revenue objective might be facilitated, the trade deficit would grow.
It is also possible that the dollar weakens, probably driven by fear of turmoil and uncertainty in the U.S. business environment, driven by the tariffs, expulsion of immigrants, and burgeoning U.S. debt, along with Trump’s proclaimed intention to pressure the U.S. Federal Reserve into keeping interest rates lower than otherwise indicated. A weaker dollar would contribute to the objective of reducing the trade deficit—although not the revenue-raising goal.
Global Context
Certain global developments accelerate the erosion of support for free trade in the United States and elsewhere. Some of these developments amplify the consequences.
- Second China shock: the sudden emergence of 600 million Chinese workers into the global economy in the first decade of this century caused major disruption of the global economy, especially for tradable products utilizing low-productivity workers (e.g., textiles, furniture). The new China shock reflects the focus of the Chinese government on promoting the production and export of higher technology products, including cutting-edge “green tech” such as electric vehicles and solar panels. Many countries, including emerging and developed industrial countries, are struggling to confront this new wave of Chinese exports, including exports diverted away from the United States by import restrictions.
- Growth of trade restrictions related to environmental and human rights concerns: Labor provisions in the USMCA and import restrictions under the UFLPA (Uighur Act) are recent U.S. examples. Europe is now moving ahead on this front, in the process of enacting trade restrictions focused on human rights, deforestation, and, especially, carbon emissions.
- Decline of WTO-led “global rules”: Many trade disputes have been resolved via the WTO, and its rules have often served to restrain protectionist intentions in some countries. However, the United States has undermined the dispute settlement mechanism, and Trump (like Biden) clearly has no desire to fix it. Given his WTO noncompliant tariff proposals, it is clear that Trump will simply ignore the WTO rules and may even formally withdraw from it. In light of U.S. disdain and the inability of the WTO to address the “China shock,” the WTO is rapidly losing or has already lost the ability to devise or enforce global rules that constrain unilateral protectionist trade actions.
What To Do?
In light of these new circumstances, global companies need to urgently identify how this situation will affect current business, what new risks might arise, and how their business strategies should change. They should seek both to mitigate risks and utilize opportunities. As the government asserts increasingly specific control over detailed decisions about imports, companies will have opportunities to influence some aspects of policies, implementation details (like specific exemption requests), and proposed specific objectives for possible negotiations.
To achieve this, companies should quickly identify their policy “asks,” develop messaging for both quiet engagement and public messaging, identify and engage proactively with key decision makers, and remain alert to new developments and new policymakers.
Ambassador (Ret.) David Nelson is an adjunct fellow with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
