In his trademark style of sweeping promises and hardline economic rhetoric, President Donald Trump has once again championed tariffs as the key to rebalancing the US trade deficit and protecting domestic industries. With his recent executive orders imposing hefty tariffs on imports from Canada, Mexico, and China, Trump has returned to the protectionist policies that defined much of his first term.
On February 1, Trump signed an order implementing his long-threatened tariff regime. Under the new directives, imports from Mexico and Canada will incur a 25% tariff, while Chinese goods will face an additional 10% duty. To minimize disruptions in critical energy markets, Canadian oil, natural gas, and electricity are taxed at a lower 10% rate. In total, these measures will affect roughly USD 1.6 trillion in annual trade among the three countries. Trump has justified the move under the International Emergency Economic Powers Act (IEEPA), citing national security concerns such as illegal immigration and the surge of fentanyl entering the country.
“The President is right to focus on major problems like our broken border and the scourge of fentanyl, but the imposition of tariffs won’t solve these problems, and will only raise prices for American families and upend supply chains,” said John Murphy, senior vice president and head of international at the US Chamber of Commerce.
Trump frames tariffs as a way to shift consumer demand toward US-made products, forcing local manufacturers to ramp up production and eventually reduce costs. He also touts tariff revenue as a tool for deficit reduction or financing tax cuts that could further stimulate economic growth.
But for these gains to materialize, several conditions need to align:
- Risk of retaliation: History offers cautionary tales. The Smoot–Hawley Tariff Act of 1930, designed to shield US farmers and industrialists, triggered retaliatory measures worldwide and deepened the Great Depression. If trading partners react aggressively, any short-term competitive advantages could evaporate. Already, Canada has vowed to roll out retaliatory measures on February 4, coinciding with the start of US tariffs on Canadian imports. Mexico has yet to specify its response, while China has pledged to challenge the move at the World Trade Organization and take countermeasures.
- Capacity building challenges: Tariffs alone do not guarantee industrial growth. The 2002 steel tariffs, for instance, were intended to boost US steel production but ultimately hurt downstream industries such as automotive and construction, leading to net job losses. For tariffs to yield sustained benefits, domestic industries must quickly scale up, improve efficiency, and absorb the increased demand—something easier said than done.
- Supply chain disruptions: Tariffs on consumer goods have historically forced companies to restructure supply chains at significant cost. For example, a 2019 study found that Trump’s tariffs on washing machines, introduced during his first term, led to a 12% price increase. Worse, these inflationary effects often persist long after the initial tariff shock.
Beyond these, other fundamental concerns remain:
- Effective revenue recycling: Tariff revenue can fuel economic growth if reinvested wisely, whether through investments or targeted tax cuts. However, merely collecting tariff revenue does not guarantee its efficient use—poor allocation could end up exacerbating budget deficits instead of reducing them.
- Time lags and adjustment costs: Transitioning from a globalized supply chain to a more domestic-oriented production base involves substantial costs. Worker retraining, infrastructure investments, and logistical realignments take time—often years. During this transition, higher consumer prices could neutralize any long-term economic gains.
- Macroeconomic effects: Tariffs can impact exchange rates. For example, an appreciation of the US dollar might reduce the cost of imported inputs but simultaneously make US exports less competitive. This delicate balance can dampen or even nullify the intended benefits of moving production back to the US.
- Policy uncertainty: Trump’s orders include provisions that allow for escalation based on trading partners’ retaliation. This open-ended nature injects uncertainty into corporate decision-making, discouraging investment and potentially stalling economic gains.
Trump’s new orders also take aim at e-commerce. By eliminating the de minimis exemption which previously allowed duty-free entry for packages valued under USD 800, the administration seeks to curb a loophole that has helped Chinese retailers like Temu, Shein, and AliExpress undercut US sellers. While the goal is to level the playing field and capture lost tariff revenue, the move risks higher prices for consumers and may disrupt an already intricate global logistics network.
Not all industry voices are entirely pessimistic, however. Donald Tang, executive chairman of Shein, told CNBC in an interview that if tariffs are applied uniformly, companies will adapt by restructuring supply chains—such as storing inventory in US warehouses. Even so, local businesses remain vulnerable to the same costly disruptions that have plagued past tariff implementations.
At its core, Trump’s tariff strategy is a vision of economic nationalism—a deliberate pivot from globalization toward a self-reliant national economy that uses protectionist measures to serve both economic and foreign policy objectives. His narrative promises to protect jobs, reduce the trade deficit, and even address public safety concerns. But history, along with prevailing economic realities, suggests such outcomes are far from certain.
While it’s easy to assume that these tariffs will backfire, it’s also true that relying too heavily on historical comparisons can be misleading. Trade policies that failed in the past may play out differently in today’s economic climate—particularly if US industries can adapt quickly and efficiently. Advances in technology and automation could accelerate this shift in ways previously unfeasible.
Still, without significant investment in capacity and a carefully calibrated policy approach, protectionism risks doing more harm than good—raising costs for consumers, straining businesses, and injecting volatility into global trade.
Trump’s new tariffs are set to take effect at 12:01 a.m. ET on February 4.