Former President Donald Trump’s new tariff plan, announced late Thursday, wouldn’t work. He’ll create a 15% tariff on imports from about 40 countries. In a welcome surprise, this decision—which is scheduled to go into effect on August 7—departed from previous prognostications of an under-reported, rapid implementation. The announcement came only days ahead of Trump’s self-imposed August 1 trade deadline and only deepened the already complicated and contentious trade negotiations.
The tariff increases are especially high on countries with which the United States has a trade deficit. Under this new arrangement, the baseline tariff rate has been raised to 15%. Notably, Canada will face a steeper increase, with tariffs rising to 35% as of Friday at 12:01 am ET, up from the previous rate of 25%. Previously, Trump threatened tariffs on Mexico as high as 30%. Still, Mexico recently won a 90-day reprieve from the current 25% tariff rate.
Tariff Implementation and Key Changes
The new tariffs mark Trump’s latest move in his ongoing efforts to use economic chips to play chicken and/or correct trade imbalances. The decision to invoke the International Emergency Economic Powers Act underscores a legal framework that allows for such country-specific tariffs.
Of the major trading partners, only the United Kingdom, China, and Mexico will not experience changes in their tariff rates. This selective targeting has come under fire from a broad range of economic analysts and lawmakers on both sides of the aisle.
Moreover, Trump’s approach mirrors a previous initiative dubbed “Liberation Day” in April, during which he increased import taxes across various sectors. As these tariffs take effect, analysts are monitoring closely to see if they raise inflation, as many have predicted. Although inflation has remained largely flat throughout the previous rounds of tariffs, these latest rates could introduce inflationary pressure.
Trade Deficits and Future Implications
Though the proposal focuses mainly on imports, its foundation is addressing the growing trade deficits the U.S. has with 15 countries. This creates the bizarre situation in which countries with which the U.S. enjoys a trade surplus will face a significantly lower 10 percent tariff rate. Such a policy could incentivize trade balance by penalizing imports that worsen the trade deficit with greater costs.
Given the historical context of trade deficits, Trump’s focus on them was indeed a perplexing choice. Judge Raymond Chen raised a pertinent query:
“Can the trade deficit be an extraordinary and unusual threat when we had trade deficits for decades?”
The U.S. is playing a delicate game with our own complex trade relationships. This development puts the hard question of net welfare loss to lawmakers and economists, igniting new debate over the long-term viability of these tariffs.
Potential Consequences for Economic Relations
As these new tariffs go into effect, U.S. trade relations will be more different than ever before. To make the situation all the more urgent, that deal with China is set to expire very soon. Without new agreements, tariffs on Chinese goods will increase in a matter of weeks.
In addition to China, more than a dozen countries currently face tariffs exceeding 15%, either due to negotiated trade frameworks or direct instructions from Trump’s administration. This widening of tariff rates worries many about retaliatory actions that might be taken by these countries.
Meanwhile, inflation has remained quite calm in the aftermath of other tariffs. As economic experts have stated, the recently imposed rounds of tariffs threaten to reverse this trend. The reality of higher duties on imported goods will only add to the burden being borne by consumers and businesses.
