US President Donald Trump has rekindled global tensions by imposing sweeping tariffs on imports. This is shaping to become one of the most aggressive trade policy manoeuvres in decades. He claims the move will make “America Great Again” and boost American manufacturing. However, it has left 市场 and economists confused.
Trump has imposed tariffs as high as 145% on Chinese goods.
He also introduced a 10% baseline tax on products from most other countries. In response, nations including China and Canada have imposed retaliatory tariffs.
How do tariffs work and what do they mean?
Tariffs are taxes on imported goods and are calculated as a percentage of the product’s value. A 10% tariff on a $10 item will add $1 to the cost. Recent tariffs on Chinese goods can reach up to 145%. As a result, a $10 product could cost as much as $24.50 when imported into the US.
A misconception among many of Trump’s supporters is who pays tariffs. But tariffs are actually paid by the importers themselves. These are the actual businesses that bring goods into the country.
They usually pass the added cost to consumers, pushing retail prices higher.
While manufacturers may try to absorb some of the costs, the financial burden cannot be avoided in the end. In this respect, tariffs act as a constraint on foreign goods. They are also a way to tax goods in order to increase government revenue. For the consumer, there is no actual benefit.
Trump’s manufacturing argument
Trump’s rhetoric on tariffs has revolved around the idea that tariffs will rebalance trade, especially with China, and reduce the trade deficit. The US imported $440 billion worth of Chinese goods and exported only $145 billion to China, just last year.
Trump has argued that America’s trade partners have taken advantage of the US. He has promised to restore order and create more jobs through these increased tariffs.
One argument from economists is that Trump may be mistaken in his belief. They argue that the US manufacturing sector will not dominate the economy or create significantly more jobs.
Vice President JD Vance explained on X, “President Trump’s economic policies are simple: if you invest in and create jobs in America, you’ll be rewarded. We’ll lower regulations and reduce taxes. But if you build outside of the United States, you’re on your own.”
However, as data indicates, the “U.S. economy is not ready for a wholesale shift to manufacturing and that it would take years to ramp up production capabilities.” As NBC reported, only a small fraction of people in the United States work in farms and factories today. This is based on data from the Bureau of Labour Statistics.
It shows a sharp decline compared with decades past.
Additionally, experts explained that focusing on domestic goods production will increase costs for consumers. It will also undermine America’s growing advantage in the knowledge economy.
Trump’s America is that of the past, as nowadays manufacturing jobs have declined and have been replaced by professional and business services, which took manufacturing’s place.
Global impact of tariffs
The global economy has begun to experience the negative impact of tariffs, with the International Monetary Fund (IMF) deciding to cut its global growth forecast for 2025 to 2.8%, down from 3.3%. The US is also expected to feel the burden of tariffs, as growth forecasts have been downgraded to 1.8% and IMF warned of a potential recession in 2025.
China has retaliated with a 125% tariff on US imports. There is talk of possible negotiations between the US and Beijing to ease trade tensions. However, China remains unyielding in its stance. It has said that further US tariff hikes would become a “joke.”
The number of countries facing tariffs continues to grow. The European Union, Canada, Mexico, and Asian partners like Vietnam have all been hit with tariffs. Some of them have entered trade talks. Others are preparing to retaliate with their own tariffs.
Automobiles and tech affected the most
The automotive sector has been particularly exposed with tariffs on steel and aluminium (25%) and cars and parts (25%) increasing manufacturing costs. Depending on complexity and cross-border supply chains, the price of some vehicles could rise by $4,000 to $10,000, according to some analysts.
While in the technology sector, smartphones and computers were exempted, Trump has said that such leniency won’t last. Small parcels under $800 may face a 90% tariff or a flat fee of up to $150 per item, limiting consumer access to cheaper gadgets and accessories.
Impact on consumers and businesses
With costs rising for importers, businesses may have to limit their inventory or pass the costs on consumers. Clothes, electronics, alcohol and coffee prices are forecast to rise.
US-based manufacturers that rely on importing parts will also bear the burden of higher prices. Supply chains are complex and international, and certain parts like those for cars tend to go through different borders before being assembled, which means additional tariffs and higher costs for both businesses and, eventually, consumers.
Stocks and currencies affected
The market response to the tariffs was heightened volatility and caution. Stock prices have fluctuated sharply following each tariff announcement while the uncertainty impacted pension funds, investment portfolios, corporate hiring and expansion plans.
Traditionally a safe haven, the USD dropped to its lowest point since 2022 in April, partly due to Trump’s criticism of Federal Reserve Chair Jerome Powell, whom he called a “major loser” for not reducing interest rates further.
Tariff consequences on UK and Europe
Tariffs are also bad news for the UK. The UK exported £58 billion worth of goods to the US in 2024. A large part of the exports were goods from sectors that are affected by tariffs such as cars, pharmaceuticals, and machinery.
Prime Minister Sir Keir Starmer, in an attempt to weather the economic consequences of tariffs has sought a trade agreement with Washington but Trump’s advisors stressed that any such deal should be “extraordinary.”
The European Union is negotiating for exemptions during the 90-day tariff pause, but is also ready to retaliate if the talks fail.
What to expect next?
The future remains uncertain. On the one hand, Trump explained that even if tariffs are reduced, they will never go down to zero. While the US Treasury Secretary Scott Bessent said that the current trade war is “unsustainable”.
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