Trump’s tariff wars

US President Donald Trump's reliance on tariffs as a key policy tool took centre stage during his first presidential term. Initially framed as a way to safeguard American industries and correct trade imbalances, tariffs soon became a cornerstone of his broader geopolitical strategy.

Now, poised for a potential return to the global stage, Trump’s recent declarations about imposing sweeping tariffs on major trading partners indicate not just a continuation but an escalation of this approach – one that could have far-reaching domestic and international consequences.

To be fair to the American president-elect, Trump is not the first one to implement tariffs. Historically, the US, like many other nations, has used tariffs to protect emerging industries and generate revenue. However, the Smoot-Hawley Tariff Act 1930 of the US is a stark reminder of the risks associated with tariffs. This law raised duties on numerous imports and is widely believed to have worsened the Great Depression by curbing global trade.

During his first term, Trump's tariff policies echoed those earlier measures but had unique political implications. He imposed tariffs on steel and aluminium imports, citing national security concerns. These actions aimed to revitalise US domestic production but also increased costs for manufacturers reliant on imported materials, leading to higher prices for consumers.

Trump also targeted countries that had substantial trade surpluses with the US, particularly China, imposing 10 per cent tariffs on key sectors associated with China's ‘Made in China 2025’ initiative. The latter initiative sought to position China as a leader in advanced technology industries, making it a focal point of US concerns over global competition. In response, Beijing retaliated by imposing tariffs on American agricultural products and diversifying trade partnerships to reduce reliance on US markets. The tit-for-tat moves between the US and China over trade relations did not stop there.

The European Union was a key target of Donald Trump’s trade policies during his first presidency. Threats of tariffs on automotive exports provoked sharp criticism, leading the EU to retaliate with tariffs on iconic American goods like bourbon and motorcycles. By targeting products linked to Trump’s political base, the EU aimed to exert maximum leverage. These trade skirmishes, compounded by legal challenges at the World Trade Organization (WTO), significantly strained US-EU economic relations during Trump’s tenure.

Adding to the tension, the WTO’s trade dispute settlement mechanism became dysfunctional under Trump. His administration blocked the appointment of new judges to the WTO Appellate Body (WAB), effectively rendering it inoperative. Justifying the move, the administration accused the WTO of bias against American interests. This paralysis has persisted in Biden’s presidency, with the US continuing to obstruct new appointments. As a result, countries have increasingly turned to unilateral, often retaliatory, measures like tariffs, further destabilising the global trade system.

The issue extends beyond the continued dysfunction of the WTO Appellate Body under a potential second Trump administration; the more troubling development lies in his declared plans to dramatically escalate his tariff strategy. Trump appears intent on wielding tariffs not only as economic tools but also as instruments of geopolitical leverage. A striking example is his proposal to impose 100 per cent tariffs on BRICS nations if they pursue alternatives to the US dollar.

While the emergence of alternatives to the dollar is widely seen as vital for fostering a multipolar world, BRICS is unlikely to establish its own reserve currency in the near term. However, such aggressive tariff threats from Trump are certain to intensify the bloc's resolve to accelerate efforts toward this objective.

Even if blanket tariffs on BRICS member countries are not imposed, the potential tariff hike specifically targeting China will still have significant repercussions on global markets. For example, China accounts for 20 per cent of the global aeronautics market. Any retaliatory tariffs from Beijing on US Boeing jets would severely impact Boeing's profitability and further destabilize the industry.

Trump's tariff threats are not limited to adversaries; they extend to America's closest allies and partners too. He proposed a 25 per cent tariff on all imports from Canada and Mexico, citing concerns over illegal immigration and drug trafficking. Canadian Prime Minister Justin Trudeau responded with calls for dialogue, stressing the importance of maintaining economic cooperation, while also hinting at the possibility of excluding Mexico from North America’s free trade agreement if deemed necessary.

Mexican President Claudia Sheinbaum, in contrast, cautioned that such measures would lead to inflation and job losses on both sides of the border, remarking, “To one tariff will come another, and so on, until we put our common businesses at risk.” The mere announcement of Trump’s tariff threat, effectively jeopardising the US-Mexico free trade agreement, sent the Mexican peso tumbling against the dollar.

Brussels, too, is preparing to face Trump’s anticipated tariffs. It is determined to open new markets for its car makers and other industrial companies. A practical step forward in this regard is the long-awaited trade deal (which was under negotiation for the last 25 years) that was signed between the EU and MERCOSUR (a customs union made up of Argentina, Bolivia, Brazil, Paraguay, and Uruguay) few days ago. Once enforced the EU companies will save $4.2 annually on export duties.

Trump’s renewed focus on tariffs coincides with the ongoing retreat of globalisation, often described as ‘slobalisation’. The once-thriving era of seamless international trade and interconnected supply chains is steadily giving way to fragmented trade blocs, regional alliances, and rising protectionism. By imposing sweeping tariffs and undermining multilateral trade norms, Trump risks accelerating this shift. His tariffs could erect additional barriers that dampen cross-border investment, restrict market access, and stifle the innovation fueled by global collaboration.

Developing nations, which depend heavily on the efficiencies of global trade, are likely to bear the greatest burden, facing reduced export opportunities and deepening economic fragmentation. Meanwhile, the absence of a functional WTO Appellate Body deprives countries of a neutral forum for resolving trade disputes, encouraging unilateral actions and retaliatory measures. This prolonged paralysis has left the global trading system in disarray, exacerbating uncertainties in international trade and straining economic partnerships worldwide.

The effect of Trump’s tariff policy could not have been explained better than South Korea’s Central Bank Governor Rhee Changyong. Commenting on the South Korean president’s failed attempt to impose martial law he said that South Korea’s export-oriented economy is in greater jeopardy from Donald Trump’s trade policies than from the political crisis at home.

The world is watching intently to see whether Trump's renewed tariff strategy will achieve its geopolitical aims or worsen economic divisions and global tensions. With US businesses and consumers facing increased costs, and developing countries, allies, and rivals dealing with the destabilising effects of these policies, the future of the global trade system hangs in the balance in an era already marked by ‘slobalisation’.

The writer heads the Sustainable Development Policy Institute (SDPI) and

is a member of the COP29 International Advisory Committee. He tweets/posts @abidsuleri