
During his first term, President Trump tweeted, “Trade wars are good and easy to win.” That may be tested in the coming weeks as the United States, Canada, Mexico, and China adjust to the new trade landscape underTrump.
The President has leveraged the International Economic Emergency Powers Act to impose a 25% tariff on products imported from Canada and Mexico (although tariffs on Mexico have been delayed for one month) and a 10% tariff on products imported from China. Additionally, duty-free de minimis shipments (less than $800) from these countries to the United States will no longer be allowed.
Not surprisingly, retaliatory tariffs have already been announced and the back and forth (in both rhetoric and tariffs) may escalate quickly. While these actions are entirely within the powers of the President, here are 5 factors that may influence trade decisions as this situation evolves:
(1) Strong Industry Concerns: There has already been a fairly loud response from the business community - most of which have expressed concerns for both U.S. companies and their customers should the tariffs remain in place. That industry voice is important and influential within the White House, especially as more sectors echo concerns, which we can expect.
(2) Economic Indicators: The White House will certainly watch the economic data should tariffs create uncertainty in the markets in the near term and potential price increases over the longer-term. The President has always closely tracked the stock market reaction to policies (both good and bad) and ran a campaign partially based on reducing inflation, so economic indicators here are significant.
(3) The Response of Trading Partners: The three countries facing new tariffs certainly can have some influence in this situation. Their reaction (and all have pledged retaliatory policies) will play a role in the White House’s decision-making going forward. Similarly, their response to the President’s stated concerns (largely around border policy and the import of Fentanyl) will be considered as to when to ramp up or ramp down tariffs. Case in point -- Mexico committed to adding military to the border and received a one-month delay from the President.
(4) GOP Policymakers: While the House and Senate will not play a direct role in determining the path forward, they can certainly play an influential role. There are well-positioned policymakers (including some in leadership positions) who are not big fans of tariffs and have been on the record in that regard. Just after this most recent round of tariffs, Senator Rand Paul (R-KY), a strong ally of the President’s, noted that “tariffs are simply taxes. Conservatives once united against new taxes. Taxing trade will be less trade and higher prices.” As more Republicans echo this concern, it may change the course of these tariffs.
(5) Messaging by Democrats: Democrats neither have the power nor the platform they once did with a Democratic Administration and a majority in the Senate. Nonetheless, if they pull together an effective strategy to message tariffs as a tax increase and cause for inflation (in a manner that reaches voters and spurs concern), they could have some influence here. With a 2026 election on the horizon, Republicans do not want to have political risk and Democrats could add some pressure by both messaging around this issue and making some new friends in the business community.
The complexities around trade policies are limitless and there are a number of different directions this most recent tariff policy may go. However, this is a tool being used for leverage (as the President and his cabinet nominees have pointed out), so we will likely see a similar game plan rolled out in other areas - maybe the European Union, a universal tariff on all imports, or something else. This round will inform any tariffs to come and will better identify what impacts key decisions and how much countries are working to resolve areas of concern behind the scenes.
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