Trump's America First Trade Policy: Tariff Risks Are Rising
American President Donald J. Trump loves tariffs, and that's an indication that they're not going away anytime soon.
As Trump tries to upend the U.S. trade deficit, tariffs have become his go-to tool to bend foreign governments to his will. For Trump, it's his presidential version of 'The Art of the Deal.' He's already imposed a 25 percent tax on imports from Mexico and 25 percent on select items from Canada to curtail illegal migrants and drugs from crossing U.S. borders. The two reacted with retaliatory tariffs of their own, although all are currently on 'pause' following preliminary concessions as the North American trading partners try to find a more permanent resolution to avoid a trade war.
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The 30-day delay continues until March 4. 'We think a further extension is likely, but the tariff risk for both countries is likely to remain until at least the conclusion of the USMCA review slated for mid-2026' concluded economists at Goldman Sachs.
The USMCA is the U.S.-Mexico-Canada Agreement to Buy America, which replaced the North American Free Trade Agreement that Trump signed during his first term as president. The agreement is up for review in 2026.
As for the Goldman economists' expectation that there could be a further delay on the start of Mexican and Canadian tariffs, that's always a possibility. And all the more likely if talks result in some concession that Trump can claim as a big 'win.'
The Goldman economists also believe that a tariff on 'critical imports' is an increasing risk. That would include oil/gas, industrial metals, pharmaceuticals, semiconductors and other electronics, as well as critical minerals, totaling around $600 billion in total imports. And they see a broad tariff on the European Union and a universal tariff as 'clear risks.'
The additional 10 percent tariffs imposed on China began on Tuesday. China retaliated with its own set of tariffs on American exports to China. It also placed export restrictions on critical minerals to the U.S.
Telsey Advisory Group's chief investment officer Dana Telsey said on Wednesday that the announced tariffs on Canada, Mexico, and China together could result in a 'tax' burden to the average consumer in the range of $830 in 2025, citing to a Jan. 31, 2025, analysis by the TaxFoundation.org. But she also noted that the projection did not include the impact of retaliatory tariffs.
'President Trump included in the executive order on tariffs the ability for the U.S. to increase the tariffs on Canada, Mexico, and China if retaliatory tariffs are imposed on the U.S.,' she said.
How high can tariffs go?
The Goldman economists believe the risks have 'tilted toward higher' tariffs than they had previously assumed. 'The challenge is that creating uncertainty is likely part of President Trump's strategy,' they concluded in an economic research note on Tuesday.
But using tariffs as a tool to extract foreign government concessions as Trump pushes forth on his trade deficit goals—which are part of his 'America First Trade Policy'—also means more duties are on the horizon.
Trump has said that America has trade deficits with almost every country, and he wants to right what he sees as a wrong. That's where a universal tariff could come into play. Or in the case of the digital services tax (DST), Trump could play hardball by slapping reciprocal tariffs if he doesn't get the concessions that he wants.
Morgan Stanley's U.S. public policy strategists Ariana Salvatore and Michael D. Zezas on Wednesday said they believe Trump will levy more tariffs on China later this year as part of a larger trade policy goal. They also didn't rule out the possibility of a more aggressive path on the overall tariff front if the Trump administration's motives are due to trade deficit concerns more than policy concessions. The strategists also noted public comments by Trump on Friday when he said he did not see border concessions as sufficient because the goods trade deficit would persist. And if cutting the trade deficit is the ultimate goal, tariffs could be used for a considerable time in an effort to incentivize more domestic production, Salvatore and Zezas concluded.
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