As Donald Trump prepares to take office in January 2025, experts in trade and investment are weighing up the potential impact of his policies.
In his first term, Trump imposed tariffs on imports from China and targeted goods, such as steel and aluminum, which effectively doubled the total dollar amount of tariffs collected. He looks to go further in his second term, saying upon entering office he will impose a 25% tariff on imports from Mexico and Canada — the United States’ two biggest trade partners — and an additional 10% tariff on goods from China. He has also touted reciprocal tariffs matching what individual countries impose on U.S. exports.
There is little doubt that tariffs are coming. The question is how soon. “I think we need to anticipate big tariff increases, if not by legislation then by existing statutory authority. This has been Trump’s MO and I have no reason to believe he will change,” says Erik Autor, of counsel at Washington-based customs and trade law firm Barlow & Co and a previous chair of the National Association of Foreign-Trade Zones (NAFTZ).
Shannon Fura, founding partner of Page Fura, a Chicago-based law firm specializing in international trade, and immediate past chair of the NAFTZ, agrees. “Most of the tools in the Administration’s arsenal require compliance with a statutory review, notice and comment process which would delay their implementation in the short term,” she says. “However, should the administration draw on the International Emergency Economic Powers Act, an almost certainty at this juncture, then the tariffs will be imposed sooner — likely within the first 100 days — than later.”
As for the impact of the sanctions “it will be enormous”, Fura says. Despite some assumptions to the contrary, an exporting country and/or its businesses do not pay for the tariffs; it is the U.S. company, whether a distributor, manufacturer or retailer that incurs the cost.
“While some of the cost may be absorbed by those entities, most will get passed on to the ultimate consumer. And, those that don’t will still adversely impact the economy as the cost will lower overall profitability and reduce the funds available for expansion, research and development and other corporate initiatives,” Fura says. “We have already witnessed these impacts within our own client base for the tariffs imposed to date and those were targeted in nature.”
The prospect of a trade war looms large, not just between the U.S. and China but beyond.
“Other countries will invariably not sit still as the U.S. puts the tariff hammer down,” says Fura. “Plus, the U.S. is not the singularly dominant power in trade that it once was and we could see the U.S. efforts create a level of isolation for the U.S. that is not anticipated or desired overall.”
However, James Zhan — former director of investment and enterprise at U.N. Trade & Development and now a senior fellow associated with the UK-based think tank Chatham House — says while trade wars are bad for trade, they are a double edged sword for foreign direct investment.
“Trade wars may lead to investment creation, as well as investment diversion. First, trade wars hinder trade, but stimulate barrier-hopping investment into the highly protected markets,” Zhan says. “Second, trade protectionism will divert export-oriented FDI from most affected countries to those which have stable trade relations with the major export markets. Thirdly, these restructure-driven FDI shifts will lead to additional investment in productive infrastructure building and suppliers’ network establishment.” This is because companies may be forced to produce goods in the U.S. or restructure their supply chains to avoid tariffs.
Though Trump’s trade stance is more extreme, it is not wholly at odds with the general trajectory of U.S. policy, or of public sentiment.
Autor points out that trade is one area where there has been more overlap between the Republicans and the Democrats on issues like China, use of tariffs and other trade measures in pursuit of broader policy objectives, as well as the expanding power of the executive branch over trade and government-managed trade. While Congress has the Constitutional authority to regulate foreign commerce and impose taxes, both Democratic and Republican presidents have increasingly consolidated executive power over trade and the use of tariffs to achieve broader policy goals, particularly on national and economic security.
“The trade policy views of both the Republican and Democratic parties have increasingly converged, reflecting the attitude of an American public that is skeptical of the benefits of free trade, fearful of the impact on jobs of economic competition, particularly from China, and opposed to the global economic order,” Autor says.
President Joe Biden kept in place tariffs Trump imposed during his first term, placed little priority on renewing expired trade preference programs.
“Trade will remain at the forefront and trade policy will continue to be used as a weapon. The added wrinkle is the notion that it will be used as a revenue raiser which creates greater uncertainty regarding the breadth and scope of any actions that may be taken with the incoming administration,” says Fura.