As tariff chaos reigns, what is Trump actually trying to do?

WASHINGTON – After promising during his election campaign to put tariffs back at the centre of US economic policy, President Donald Trump moved swiftly once back in office, announcing significant new import taxes aimed at America’s trading partners. 

His tactic – implementing new tariffs and threatening others in an effort to intimidate or gain leverage in other disputes – represents a dramatic shift in a global economy where most major players have sought to reduce trade barriers. 

But the execution of Mr Trump’s signature policy has sent mixed signals, as the combination of ultimatums, delays and exemptions leaves many struggling to decipher what exactly he is trying to achieve.

What has Trump done so far?

The early focus has been on imports from Canada, Mexico and China – the three largest trading partners of the US, which together accounted for about 40 per cent of all merchandise trade in 2024.

When it comes to China, Mr Trump has been more consistent in following through on his threats. As promised, a blanket 10 per cent tax on all Chinese goods imported to the United States was introduced in early February, and

this was doubled to 20 per cent a month later.

He did delay an end to tariff exemptions for “de minimis” items from China and Hong Kong, which covers packages valued at less than US$800 (S$1,064). The move would have blocked off a tariff-free shipping route – mainly involving air freight – used by Chinese e-commerce companies that are popular with American consumers.

With Canada and Mexico, however, government officials, businesses and investors have been left reeling by Mr

Trump’s on-again, off-again strategy.

Initially, he said across-the-board tariffs of 25 per cent would be applied on shipments from the two countries on Feb 4, with a lower 10 per cent rate for energy products from Canada. These levies were then delayed for a month before even kicking in. When they finally took effect, it was for less than two days, as Mr Trump announced a further reprieve for a large swathe of goods.

First, after a plea from automakers, imports of vehicles and automotive parts were granted an exemption until April 2 if they comply with the free trade agreement between the US, Canada and Mexico, known as the USMCA. Then, Mr Trump expanded the pause to all imported goods and services covered by the USMCA, backpedalling the tariff war into a “partly off again” phase.

What tariffs could come next?

Against the backdrop of that flip-flopping, the European Union could be the next trading partner hit with tariffs. Mr Trump has threatened 25 per cent duties “on cars and all other things” arriving from the 27-nation bloc, which he has characterised as “formed to screw” the US.

Beyond the levies aimed at certain trading partners, Mr Trump has announced sector-specific measures. A 25 per cent tariff on US imports of steel and aluminium is planned from March 12, and the President has indicated that copper could be targeted too. He is also said he could impose tariffs of around 25 per cent on all automobile, semiconductor and pharmaceutical imports as early as April 2.

That date is poised to be a busy day for tariffs, coinciding with when Mr Trump intends to introduce so-called reciprocal tariffs, which would be customised for each trading partner to offset any perceived disadvantage for American companies. He has warned that Canadian lumber and dairy products could be hit with such reciprocal duties even sooner.

How have countries targeted by Trump’s tariffs responded?

Swift retaliation came from China after the doubling of US levies. It imposed tariffs as high as 15 per cent, mainly on American agricultural shipments, and banned exports to some defence companies. As tensions rise, Chinese Foreign Minister Wang Yi called the US levies “evil” and “two-faced”.

Canada was similarly fiery in its response, with Prime Minister Justin Trudeau saying the trade war is “a very dumb thing to do”. When the blanket tariffs kicked in, the Canadian government announced it would proceed with a sweeping package of countermeasures against US-made products – starting with 25 per cent tariffs on about C$30 billion (S$27.75 billion) worth of goods, including orange juice, peanut butter, wine and coffee. Those remain in place despite Mr Trump’s subsequent climbdown, although Canada has delayed plans for a second round of retaliation targeting big-ticket items like cars, steel and aluminium.

Mexico has adopted a more patient strategy. President Claudia Sheinbaum did not rush to engage in

tit-for-tat tariffs,

instead focusing on negotiating with the Trump administration. She appears to have won her counterpart over for now. When announcing the April 2 postponement for imports from Mexico on his Truth Social platform, Mr Trump said it was “an accommodation, and out of respect for, President Sheinbaum”.

What is Trump trying to achieve with his tariffs?  

During his confirmation hearing as treasury secretary in early January, Mr Scott Bessent told senators that people should expect Mr Trump to use tariffs in three ways: to remedy unfair trade practices, which Mr Trump has said would revitalise American industry; to raise revenue for the federal budget, which would be important to help pay for Mr Trump’s plans to extend tax cuts; and to use as a lever with foreign powers in place of sanctions, which Mr Trump believes have been overused.

How radical is Trump’s approach?

Some pre-existing US tariffs on goods from China, Canada and Mexico already approached or even exceeded the levels Mr Trump set. But these only apply to select categories of goods. Levying them across the board is a major departure. 

The pre-existing, relatively high tariffs cover such a small portion of US trade that the country has had a trade-weighted average tariff rate of 2 per cent for imported industrial goods, according to the Office of the US Trade Representative. That is calculated by dividing the total value of imports by the total tariff revenue. These goods make up 94 per cent of US merchandise imports by value, and half of them entered the nation duty-free.

The latest Trump tariffs are far more substantial than those imposed during his first presidency – bringing American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale. 

It said this would lead to as much as US$2,000 in additional costs for each US household. It also will mean significantly slower economic growth in the US, especially if other countries retaliate, according to a report published on March 3. 

Can Trump raise tariffs without congressional approval? 

Yes. Through a number of statutes, the US Congress has empowered the president to modify tariffs to address a variety of concerns. These include a threat to national security, a war or emergency, harms or potential harms to a US industry, and unfair trade practices by a foreign country. 

While companies can try to fight higher tariffs in court, because of past deference given to presidential powers, such challenges “would face a steep uphill climb”, according to an article posted by the Centre for Strategic and International Studies and co-authored by Mr Warren Maruyama, a former general counsel for the Office of the US Trade Representative. 

How do tariffs work?

A tariff, also known as a duty or levy, is usually calculated as a percentage of a good’s value (as declared during the customs clearance process) and assigned according to the item’s country of origin. That gets complicated when a product is assembled from parts that cross multiple borders, such as a car with US-made components that is put together in Mexico and reimported to the US. A tariff can also be levied as a fixed amount on each item. 

Goods that cross borders are given numeric codes under a standardised nomenclature called the “international harmonised system”. Tariffs can be assigned to specific product codes relating to, for example, a truck chassis, or to broad categories, such as electric vehicles. Customs agencies collect tariffs on behalf of governments. 

Who pays tariffs? 

Tariffs are paid by the importer, or an intermediary acting on the importer’s behalf, though the costs are typically passed on. Mr Trump argues that, ultimately, it is the exporter who effectively ends up shouldering the cost of a tariff. Studies have shown that the burden is more diffuse. 

The foreign company that makes the product may decide to lower its prices as a concession to the importer, or it may invest in building a factory elsewhere to sidestep the tariff. Alternatively, the importer – such as Walmart and Target, two of the biggest importers in the US – could raise the price of the item to protect its profit margin, meaning the consumer shoulders the tariff cost indirectly.

How can tariffs affect the US economy?

It can be difficult to sort through the economic effects of tariffs. They can stimulate employment by attracting investment as companies try to get around tariffs by moving factories to the taxing country. At the same time, they can provoke retaliatory tariffs that cost jobs in other parts of the economy.

When a country imposes import tariffs, domestic manufacturers do not necessarily leap in to start making the products affected. And if the nation has no alternative domestic supply of the goods concerned, then prices of those goods can go up. BLOOMBERG