The new tariff plan is to levy 10% levy on imports from China and a 25% levy on imports from Mexico and Canada—at least at the time of writing this article.
Impact on revenue
At Davos the World Economic Forum’s annual conference in Davos, Switzerland this week, Jamie Dimon, JPMorgan Chase’s chief executive defended tariffs calling them a valuable “economic weapon” and were required for national security. Dimon in the past had criticized tariffs, implying they were a threat to the economy.
According to recent estimates by the Committee for a Responsible Federal Budget these policies would increase the U.S. revenue by about $140 billion over the rest of Calendar Year (CY) 2025. If permanent, these could add $1.5 trillion in revenue through Fiscal Year 2035 on a conventional basis. A 25% tariff on Mexico will lead to higher revenues but this is also because the U.S. imports more from Mexico in dollar value than China or Canada.
But
While Trump's American First Trade Policy aims to put a check on the country’s international dependence through investment and productivity within the U.S. borders, it could backfire and instead lead to retaliatory tariffs, leading to trade wars and isolating America from being a part of critical trade pacts.
Critics warn that Trump's tariffs would not only damage all the economies involved (namely U.S., Canada, Mexico and China), but also lower the GDP of each.
Outgoing Canadian Prime Minister Justin Trudeau said on Thursday last week that Americans will have to pay more if Trump decides on imposing tariffs on Canadian goods exported to the U.S. The European Union concluded negotiations to update its Global Agreement with Mexico, aiming to deepen and widen EU-Mexico political dialogue and cooperation and create economic opportunities for both sides, including for EU agrifood exports to Mexico.
Impact on consumers
Consumers will face the brunt of the tariffs in the form of high prices and thats a risk of imposing high tariffs, especially on leading trading partners. More imported goods will get expensive leading up to inflation—an issue the Trump administration promised to tame.
A free trade agreement - USMCA (United States-Mexico-Canada) formerly known as NAFTA, keeps goods traded between the U.S., Mexico, and Canada exempted from tariffs. While the level of impact is difficult to figure at this point, it is evident that certain products in the agriculture, automobile and energy sector— imported in large volumes/value, will likely to be hit first and most. Price increase will start showing up slowly and gradually as fresh imports from the impacted countries start to flow into the U.S.
Impact on the U.S. dollar
The movement of currencies will be interesting to watch and will obviously be first to impacted first because of exchange rates.
Demand for foreign currency can fall if lesser volumes of goods are coming into the U.S. In such a case, there will be falling demand for currencies, making the domestic currency stronger than the foreign This should be more of a real-time impact but as impacted countries retaliate (by imposting tariffs on U.S. exports.) or push back, the currency might see an opposite effect.
Having said that, like everything else in trade economics, there will be many external and indirect factors that could indirectly impact the trade balance including central bank policies and reduced foreign investment.
Up next: BRICS and the U.S. tariffs