Trump – trade, tariffs and protectionism

17 January 2025

The re-election of former US President Donald Trump signals interesting and potentially challenging, times ahead for international trading businesses.

Winners and losers

“To me, the most beautiful word in the dictionary is tariff.”

While most global trade players advocate for free trade with minimal use of tariffs, the US has been shifting towards a more protectionist stance in its recent trade policies and the incoming Trump administration is looking to amplify this approach further.

Perhaps fittingly for the host of the US version of The Apprentice, Trump approaches trade as a zero-sum game with clear winners and losers, and is determined that the US should not be a loser. Focused on reducing the US trade deficit, his strategy aims to redefine the global supply chain by shifting production to the US. Although this approach seems disconnected from the benefits of comparative advantage in the production of particular goods, or the realities of today’s highly interconnected global economy, many US consumers appear to support it, even if it ultimately impacts their wallets.

While most of the US’s recent aggressive trade policies have been targeted at China in a bid to counterbalance its influence on the US economy, Trump threatens to intensify this, and impose new tariffs on other trading partners, in particular Mexico and Canada, as well. Trump also believes that the EU has been benefitting disproportionately from US-EU trade, specifically through automobile exports to the US without a corresponding demand for American products. Consequently, EU goods may also be facing increased tariffs on import under Trump’s administration. 

What do the likely tariff increases mean for business and consumers?

“The European Union... They don’t take our cars… They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price.”

Interestingly, with the announcement of Trump’s victory came the fall in share prices of major EU automobile producers – BMW, Mercedes and Volkswagen. This shows that investors are keenly aware of the changing tides and are acting accordingly.

Given that the proposed 20% minimum tariff to be applied by the Trump administration is higher than the bound rates the US has agreed with the World Trade Organization, a trade war may be imminent, as this minimum rate could trigger retaliatory measures from other countries; it also paves the way for producers in India to potentially take advantage of the adverse impact on Chinese producers.

As Trump focuses on shifting production to the US, international traders may respond by adjusting their supply chains, moving from supplying finished goods to supplying primary and/or intermediate materials to the US. Even as the US aims for greater self-sufficiency, its producers will still need to source certain component materials that are not readily available domestically from abroad.

American consumers, on the other hand, may have little wriggle room and end up paying more in the short term, as increased tariffs on imported goods are likely to translate into higher prices, as well as more limited choices of goods.

The inevitable protectionism

With the re-election of President Trump, the international trade community should be prepared for an environment where tariffs, rather than trade partnerships, define the rules of engagement.

This is especially true in terms of the US-EU relationship. Despite a pause in a 17-year trade dispute over subsidies for aircraft production, the two sides have also been entangled in another trade battle on iron/steel and motor bikes, a dispute that was suspended until after the 2024 election. Given Trump’s evident stance, it is likely that a global trade war is imminent, and businesses need to put on their thinking caps and seek support on how to respond now, rather than later.

In short, supply chains and business models will likely need to be reviewed, not only to ensure that the optimal customs value is used to reduce duty costs for goods imported into the US, but also in relation to sourcing goods from new countries and dealing with any wider impacts.

For more information, please get in touch with Brad Ashton, Jason Wellden, Jon Morbin, Olamide Osifeso or your usual RSM contact. 

Brad Ashton
Brad Ashton
Partner, Customs and International Trade
Jason Wellden
Director, Customs and International Trade
Avatar Gender neutral person
Olamide Osifeso
Tax Assistant
AUTHOR
Brad Ashton
Brad Ashton
Partner, Customs and International Trade
Jason Wellden
Director, Customs and International Trade
Avatar Gender neutral person
Olamide Osifeso
Tax Assistant
AUTHOR