US Tariffs: Order or Havoc?

By Alvira Khan & Erin D John

What are Tariffs?

Historically, tariffs have been designed to protect domestic industries by imposing taxes on imported goods and services. The idea was to stimulate local manufacturing, make foreign products more expensive, and revitalise domestic consumption.

According to President Donald Trump, “tariffs is [sic] the most beautiful word in the dictionary” “Tariffs are going to make us rich and bring our country’s businesses back” & “Tariffs will not increase inflation”

However, this is not entirely true, as countries imposing trade protectionist measures such as The Smoot-Hawley Tariff Act (1930), the Steel and Aluminum Tariffs (2002), and the Australia-China (2014-2019) trade disputes have resulted in higher consumer prices, the decline in domestic productivity and output, disruption in supply chains, and an increase in unemployment ultimately damaging the economic health, offsetting the intended economic gains.

Trump’s Policies and Pitfalls

During President Donald Trump’s previous tenure, his agenda for strengthening domestic industries included various measures such as deregulation, tax cuts & trade protectionism. While some researchers argue that it resulted in short-economic growth, several others raised concerns regarding the long-term challenges including economic instability, rising inflation & increased national debt. This is clearly evident in the graph below.

As per the statistics from the International Trade Administration (2024), the United States’ dependence on consumer goods, industrial supplies and raw materials is evident from the increasing imports and a widened trade deficit (1.21 trillion). Although it maintains a surplus in services (293.3 billion) the tariffs imposed on goods can indirectly hinder the growth of the service sector.

Regardless of the above statistics and the ultimate blow from his previous policies, President Donald Trump imposed tariffs on its major importing partners including China, Mexico & Canada on 1st February 2025. He imposed 25% tariffs on all Mexican exports, 10% on Canadian Oil and energy exports, 25% on all other products and 10% tariffs on all Chinese exports. 

Trade War 2025

The recent trade war was waged against the largest and most valued trade relationships.

The imports from Canada, China and Mexico constitute major portions of value in certain industries that operate within the US. The respective industries are Energy (Canada) Motor Vehicles (Mexico) and Electronics (China). The import trends are as shown below.

The most significant imports from China are electronic products valued upwards of $161 billion.

The US has tried to cut down its dependence on China through schemes such as CHIPS and the Science Act. However, this has not transpired into anything substantial and the major tech companies still depend on China for the major part of production.

While China is a faraway land and the trade relationship is devoid of emotions, the other two trade partners are geographical neighbours of the US. Canada is considered a brother and is a prospective 51st state of the oldest democracy in the world. That being said, the trade relationship that the US shares with the former is significant. Canada is the major source of energy supply to the US. Crude oil and natural gas constitute the main portion of the supply. The latest data indicate that the crude oil imports were valued at 1.48 billion barrels in 2024 accounting for a 63% increase.   

Similarly, the US trade relations with Mexico are very much based on trade and the expanse of that trade is larger than the wall that’s being built. The US and Mexico trade is estimated at $839.9 billion in 2024 and motor vehicles and parts business constitute a major proportion of this.

Major Frontline Sectors Affected by the Tariffs

When talking about tariffs, the conversation that does not have a foot-holding is the one around the functioning of import-export businesses in the country. Every economy in the world is based on various industries and trading institutions are an important part of the fabric of a nation. In the US almost 0.6% of businesses are engaged in the core activity of international trading. 

Crude Oil & Subsidiaries 

According to the US Energy Information Administration, 60% of U.S. crude oil imports originated in Canada. A  plethora of companies in the US engage in the conversion of this raw material into petrol and other by-products are used by the end customer. ExxonMobil, Marathon Petroleum and Chevron to name a few are US-based refinery businesses that depend on Canadian Crude oil. 

Motor Vehicles & Parts

US-based automobile companies such as GM Motors and Ford have multiple production plants in Mexico, owing to the low cost of production. GM Motors imported around 73% of vehicles from their Mexican plants in 2024. These vehicles also constitute the US exports to the rest of the world. 

Smartphones and Electronics 

While the dependence on Chinese imports has been reduced over the years it is crucial to note that 78% of smartphones come into the US from China according to the Consumer Technology Association in 2023. Tech giants like Apple, Google and even Tesla have production plants in China.        

Undoubtedly, the United States is the better half of these economic relationships; however, the declaration of tariff wars does not guarantee sustainability in this position. The veil of protecting the domestic economy will eventually come off. Firstly, businesses that solely depend on imports and exports will face a paradigm shift in their core business activity. Secondly, US-based companies operating overseas for comparative advantage will face disruption in their supply chain. Moreover, the strain it will create on trade relationships will affect the consumers through a shortage of supplies, an increase in prices and limited availability of jobs.  

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