All sectors involved in international trade and the global supply chain are bracing for impact as President Donald Trump is set to waste little time introducing new universal tariffs, impacting around USD 3.38 trillion worth of goods. For months on the campaign trail, he brandished a tariff proposal that would levy a 60% to 100% tariff on goods brought into the USA from China, and a 10% to 20% tariff for goods from everywhere else. In recent weeks, even before taking office, the US President has already begun using the threat of tariffs as a coercion tactic against key trade partners, involving Canada, Greenland, Denmark, Mexico, and China, hinting that the issue will be a core diplomatic muscle throughout his second presidential term. 

The President has described tariffs as a multiuse tool that will bring a new source of revenue for the government to reduce the federal deficit, prevent US companies from moving overseas, and penalise other countries for unfair trade practices. A big question remains however over exactly how the plan will materialise. There is speculation that President Trump will declare a national economic emergency to grant himself new powers. Others still believe he could take a more staggered approach, only targeting specific critical industries first. What most economic experts do agree on, is that such a sweeping policy change will have major ripple effects right through the global economy. 

Broader change

Speaking to ICS Leadership Insights, Mike Roberts, a senior fellow at the Hudson Institute’s Center for Defense Concepts and Technology, believes President Trump’s proposed tariffs are part of a broader trend of reverse globalisation. During the 1990s, free trade legislation such as the Ocean Shipping Reform Act took place under the assumption that America was always going to be a global superpower. During that time, it was not believed that shipping and shipbuilding were significant “from a national security perspective”. 

“Those assumptions are no longer true,” said Roberts. “China has become a very serious adversary and has an opportunity to overtake the US and the Western order. They have serious economic and military means to accomplish this. Further, they have made shipping and shipbuilding a central part of their strategy.”

Roberts added that the tariffs are President Trump’s way of responding to his own instincts and that of his political base that wide open trade “hurts the working class”. “He believes that the tariffs will bring jobs back and help with deficit reduction.” 

In having raised the issue so forcefully, Roberts said, it is “almost certainly” going to go forward. “I have also come to understand he is a deal maker and a negotiator. He is aware of the restraints and pays attention to them.”

There will be countries that may retaliate immediately, some countries may see an opportunity to negotiate, and others still may want to get exclusions on key exports. We will have to wait and see. – Michael Beeman

Consumers bear the brunt

Professor Kimberly Clausing, a nonresident senior fellow at the Peterson Institute for International Economics (PIIE), told ICS Leadership Insights that President Trump’s tariff plan, if enacted, will be counterproductive to his stated intentions. Instead of reducing the trade deficit and increasing production, “they will instead raise consumer prices, and introduce new shocks to the economy,” she said.

Clausing, who also served as Deputy Assistant Secretary for Tax Analysis in the US Department of the Treasury under the Biden Administration, shared a recent PIIE Policy Brief with this publication, where she claimed the policy, along with other proposed tax cuts, would amount to “regressive tax cuts, only partially paid for by regressive tax increases”. 

Clausing also noted the tariffs would reduce after-tax incomes by “3.5 percent for those in the bottom half of the income distribution” and cost a typical household in the middle of the income distribution about USD1,700 in increased taxes each year.

Lessons from the past

Meanwhile, speaking to ICS Leadership Insights, Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation (NRF), that there were lessons to be learned from the 25% tariff the President applied to some goods from the People’s Republic of China (PRC) during his first presidential term in 2018. 

“These tariffs initially involved USD50 billion worth of merchandise,” he said. “Then China retaliated, and then the US retaliated, which meant we ended up with USD350 billion worth of products subject to Section 301 China Tariffs.”

At the time, many companies and particularly SMEs could not absorb the costs and had no choice but to pass it onto consumers. This time round, the effects could be even more widespread. Gold said an NRF study from November 2024 showed that American consumers will lose between USD46 billion and USD78 billion in spending power should the new universal tariff plan be implemented. Gold added: “US manufacturers rely on a significant amount of intermediate goods to make products, which will go up in cost. These tariffs will have a significant negative impact across the board for any category or industry that relies on the global supply chain.”

Adding to the issue, last week the Section 301 investigation by the US Trade Representative concluded that the PRC’s targeted dominance in the US maritime, logistics, and shipbuilding sectors is “unreasonable and burdens or restricts US commerce”, making further mitigative action even more likely.

The new normal?

Looking to the future, some experts believe the universal tariff is part of a broader shift towards protectionist policies across the world. Michael Beeman, former assistant US trade representative for Japan, Korea and Asia-Pacific Economic Cooperation at the Office of the US Trade Representative, told ICS Leadership Insights that the US approach to trade and policy has fundamentally shifted on both sides of the spectrum. “It is really being pulled apart by both the progressive left and new right who are in alignment in one area, which is creating walls at the border to make imports more difficult.”

Fuelling this concern is the belief that other countries are increasingly becoming a backdoor for Chinese imports. “It’s very complicated to try and close all these doors,” Beeman said. “A much simpler way is to increase tariffs on anything.”

Regardless, Beeman believes it is too early to tell whether the long-term impact of a universal tariff will be negative or positive for the global economy. “So much will depend on how sweeping it is, and how countries fall into the criteria which determines how tariffs will be increased.”

He concluded: “There will be countries that may retaliate immediately, some countries may see an opportunity to negotiate, and others still may want to get exclusions on key exports. We will have to wait and see.”