Tariffs in the second Trump administration Background and Projections

In the second Trump administration, tariffs were a major focus, with the goal of protecting American industries and workers. The administration imposed tariffs on imported goods from various countries, including China, Canada, and the European Union.

One of the key tariffs imposed was on Chinese goods, which was done under Section 301 of the Trade Act of 1974. This allowed the administration to impose tariffs on up to $500 billion worth of Chinese imports.

The tariffs were meant to pressure China into making changes to its trade practices, particularly in regards to intellectual property and technology transfer. However, the impact on American businesses and consumers was significant, with many companies passing on the increased costs to their customers.

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On April 2, 2025, President Donald Trump declared it "Liberation Day" and signed Executive Order 14257, which declared a national emergency to address the large and persistent U.S. trade deficit.

The order aimed to boost domestic production, create American jobs, and generate trillions of dollars to reduce taxes and pay down the national debt. Trump unveiled a two-tier tariff structure, with a 10% baseline tariff applied to imports from all countries not subject to other sanctions, and additional country-specific "reciprocal" tariffs ranging between 11% and 50% for countries with which the U.S. had the greatest trade deficits.

The 10% baseline tariff began at 12:01 a.m. EDT on April 5, 2025, while the higher country-specific rates commenced at 12:01 a.m. EDT on April 9, 2025.

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The reciprocal tariff policy, a key component of the Trump administration's trade strategy, was implemented through Executive Order 14257 on April 2, 2025. This policy aimed to address the large and persistent US trade deficits by imposing tariffs on imports from countries with which the US had significant trade deficits.

The tariffs were not reciprocal, but rather unilateral, as they vastly overestimated the tariffs imposed by US trading partners. For example, while the formula translated a 39% trade deficit in goods with the EU into a 20% tariff, actual tariffs imposed by the EU on US goods averaged only 3%.

The policy was designed to be a negotiating tool, a punitive measure, and a macroeconomic tool. The administration saw tariffs as a way to put pressure on trade partners during negotiations, as well as a potential bargaining chip. However, the policy ultimately proved to be a complex and contentious issue, with economists disputing the idea that trade deficits were representative of unfair trade practices.

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The tariffs were implemented in a two-tier structure: a baseline 10% tariff applied to imports from all countries not subject to other sanctions, and additional country-specific "reciprocal" tariffs ranging between 11% and 50% for the countries with which the US had the greatest trade deficits. The administration asserted that trade deficits were representative of unfair trade practices, an idea disputed by economists.

Here is a breakdown of the key features of the reciprocal tariff policy:

The implementation of the reciprocal tariff policy was met with significant economic volatility, with stocks surging within minutes of the 90-day pause announcement. However, analysts warned that the remaining tariffs still represented a substantial new burden, and the US's average tariff rate would still rise to 24% from 2% the year prior.

Tariff implementation is a complex process that relies on various legal authorities. The Tariff Act of 1930, also known as the Smoot-Hawley Tariff Act, is the primary legislation governing tariffs in the United States.

The Act gives the President the authority to raise or lower tariffs, and the President has used this power to implement various tariffs over the years. The 1930 Act also established the Tariff Commission, which is responsible for investigating the impact of tariffs on industries and consumers.

Section 301 of the Trade Act of 1974 allows the President to impose tariffs on imports from countries that engage in unfair trade practices. This provision has been used to impose tariffs on imports from countries like China and Canada. The President can also impose tariffs on imports that are found to be harming domestic industries.

The Tariff Commission's findings are used to inform the President's decisions on tariffs. The Commission's reports provide data on the impact of tariffs on industries and consumers, and they often recommend changes to tariffs. The President must consider these findings when making decisions on tariffs.

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Tariffs can significantly impact importers, particularly those dealing with goods from China, as President Trump has expressed intent to increase tariffs during his second term.

The Trump administration's proposed tariff hikes could lead to increased costs, disrupted supply chains, and compressed profit margins for importers.

Companies may benefit from several tariff reduction strategies to mitigate the impact, such as reducing or eliminating costs and improving cash flow.

Tariffs can also impact the dollar, with two main effects at play: the exchange rate will strengthen, but a weak American economy could cause an increase in the price level and lead to a decrease in the dollar's attractiveness.

The full faith and credit of the United States is vital in sustaining our position as the central reserve currency of the world.

The expected tariff increases under the new Trump administration include increased tariffs on all U.S. imports and an additional tariff on Chinese goods.

These expected increases in customs tariffs will impact companies importing raw materials, intermediate and finished goods, and capital equipment.

Here are some key statistics on the expected tariff increases:

The International Emergency Economic Powers Act of 1977, section 301 of the Trade Act of 1974, and section 232 of the Trade Expansion Act of 1962 provide the executive branch with authority to set tariffs to protect the American economy and national security.

Some countries were exempted from the "reciprocal" tariffs. These countries include Belarus, Canada, Cuba, Mexico, North Korea, and Russia.

The White House cited that Canada and Mexico were exempted because Trump previously issued executive orders imposing tariffs of 25% on the two countries for non-USMCA goods. If those orders were revoked, non-USMCA goods from Canada and Mexico would receive a 12% tariff.

Additionally, certain goods were excluded from the tariffs. These goods include all articles subject to 50 USC 1702(b), such as books and other informational materials, steel and aluminum products, automobiles and automobile parts, and more.

Here are the countries that were exempted from the tariffs:

Note that Syria received a heightened tariff of 41%, despite being under American sanctions for 20 years.

Certain goods were not impacted by the "Liberation Day" tariffs. These include books and other informational materials, which were exempt due to being subject to 50 USC 1702(b).

Steel and aluminum products were also excluded, as they were separately impacted by a 25% universal Section 232 tariff. The same goes for automobiles and automobile parts, which were also subject to a 25% universal Section 232 tariff.

Copper, pharmaceuticals, semiconductors, lumber articles, and certain critical minerals were exempt due to being under investigation for Section 232 tariffs. Energy and energy products were also excluded, some of which were under investigation for Section 232 tariffs.

Additionally, imports from Mexico and Canada were impacted by previous executive orders, but would receive a 12% tariff if those orders were revoked. Imports from countries subject to Column 2 of the HTSUS, which at the time were Cuba, North Korea, Russia, and Belarus, were also excluded.

The following list highlights some of the specific goods that were excluded from the tariffs:

Canada and Mexico were exempted from the "reciprocal" tariffs because Trump previously issued executive orders imposing tariffs of 25% on non-USMCA goods from these countries.

Six countries were actually exempted from the "reciprocal" tariffs: Belarus, Canada, Cuba, Mexico, North Korea, and Russia.

Belarus, Cuba, and North Korea were exempted because American sanctions on them were already high.

Syria, which has been under American sanctions for 20 years, did receive a heightened tariff of 41% despite having similar sanctions.

The White House exempted Canada and Mexico because their existing tariffs were already 25% on non-USMCA goods.

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The Trump administration's tariffs sparked a lot of controversy, with many economists criticizing the formula for being overly simplistic and unrelated to trade barriers. The Economist described it as "almost as random as taxing you on the number of vowels in your name".

Economic experts pointed out that trade deficits are not inherently problematic, and that buying more than you sell in a mutually beneficial exchange is not a cause for concern. In fact, a Reuters/Ipsos poll found that 73% of Americans expected a price surge under the Trump tariffs.

The tariffs also faced legal challenges, with at least seven cases filed in American federal courts. A Washington D.C. district court ruled against the Trump administration in Learning Resources v. Trump, holding that the IEEPA does not authorize tariffs at all.

Many economists criticized the White House for misinterpreting and incorrectly applying research on the reciprocal tariff formula.

Economic experts described the formula as overly simplistic with little relation to trade barriers, and some likened fears over trade deficits to worrying about having a "deficit" with a grocery store.

The administration used a wrong variable from Brent Neiman's research, leading to results four times too high, and trade deficits reflect economic fundamentals, not unfair trade.

A Reuters/Ipsos poll found that 73% of Americans expected a price surge under the Trump tariffs, and 57% opposed the tariffs.

The closure of the de minimis exemption had a significant impact on Chinese e-commerce companies, with Temu announcing it would stop selling goods from China directly to US customers.

In May 2025, at least seven cases were filed in American federal courts challenging Trump's authority to impose tariffs under IEEPA.

The United States Court of International Trade (CIT) issued a summary judgement in V.O.S. Selections, Inc. v. Trump and Oregon v. Department of Homeland Security, ruling that Trump had overstepped his authority under the IEEPA.

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The CIT invalidated all of the tariffs Trump had imposed under the IEEPA, including the "Liberation Day" tariffs, because "the triggering national emergency bore no rational connection to the trade measures imposed."

A Washington D.C. district court also ruled against the Trump administration in Learning Resources v. Trump, and went further than the CIT by holding that the IEEPA does not authorize tariffs at all.

Both rulings are on hold while the administration appeals, allowing the tariffs to remain in effect.

Arguments before the Court of Appeals for the Federal Circuit were held on July 31, 2025.

The idea of "reciprocal" tariffs sounds fair, but the reality is far from it.

The "reciprocal" tariffs imposed by the US are actually unilateral, meaning they're based on an overestimation of tariffs imposed by US trading partners.

The formula used to calculate these tariffs vastly overstates the tariffs imposed by countries like the EU. For example, a 39% trade deficit in goods with the EU leads to a 20% tariff, but the actual tariffs imposed by the EU on US goods average only 3%.

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This overestimation can lead to unfair trade practices and harm US businesses and consumers.

Here's a comparison of the actual tariffs imposed by the EU on US goods and the tariffs calculated by the US formula:

This discrepancy highlights the need for a more accurate and fair approach to tariffs, one that takes into account the actual trade practices of US trading partners.

Importers can mitigate the impact of the Trump administration's proposed tariff hikes by implementing various strategies. Companies may benefit from several tariff reduction strategies to reduce or eliminate costs and improve cash flow.

Bonded warehouses can be used to store merchandise under customs supervision for up to five years without paying tariffs and related fees. Estimated setup time is 1 to 3 months.

Foreign-trade zones allow materials to be entered for further processing and then imported into the United States with deferred, reduced, or eliminated tariffs. Estimated setup time is 1 to 6 months.

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Temporary import bonds enable goods to be imported for purposes such as repair, testing, and further manufacturing without paying tariffs, provided they are exported or destroyed within a set time frame. These bonds typically last for one year from the date of import and may be extended to three years in total. Estimated setup time is 1 to 3 days.

Duty drawback refunds up to 99% of tariffs and fees paid on imported goods that are later exported or used to manufacture exported goods. Estimated setup time is 1 to 3 months.

These programs can help companies navigate the complexities of a high-tariff environment while maintaining their competitive edge. Implementing these programs can also enhance supply chain and profit levels.

Here are some estimated setup times for the above programs:

RSM's Trade and Tariff Advisory team can help businesses identify and implement tariff savings strategies to improve cash flow, reduce costs, and enhance competitiveness.

The Trump administration has been busy with trade deals and tariff announcements. On May 8, the President announced a trade deal with the United Kingdom, reducing some Section 232 tariffs.

The deal with China on May 12 was a temporary agreement, with China agreeing to cut tariffs on US goods to 10% and the US agreeing to cut tariffs on Chinese goods to 30% for 90 days. This agreement also included a reduction in the tariff on Chinese de minimis shipments from 120% to 54%.

The US and Vietnam reached a third agreement on July 2, with Trump announcing a 20% tariff on Vietnamese goods and a 40% tariff on transshipped goods in exchange for a 0% tariff on US exports.

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The Trump administration has signaled aggressive trade and tariff policy stances, which could lead to significant changes in the US economy.

Several U.S. statutes provide the executive branch the authority to set tariffs it deems necessary to protect the American economy and national security, including the International Emergency Economic Powers Act of 1977, section 301 of the Trade Act of 1974, and section 232 of the Trade Expansion Act of 1962.

Importers could face substantial increased costs due to expected tariff increases on all U.S. imports, which would impact companies importing raw materials, intermediate and finished goods, and capital equipment.

The early months of 2025 and beyond are expected to see companies struggling with compressed profit margins and disrupted supply chains as a result of these tariff increases.

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The U.S. and China reached a temporary trade deal on May 12, where China agreed to cut tariffs on U.S. goods to 10% and the U.S. agreed to cut tariffs on Chinese goods to 30% for 90 days.

This deal was a significant development, as it showed that both countries were willing to make concessions to reach an agreement. The U.S. also issued Executive Order 14298, which reduced the tariff on Chinese de minimis shipments from 120% to 54%.

On May 13, the S&P 500 turned positive for the year, indicating a positive market reaction to the trade deal. This was a welcome sign, as the stock market had been volatile in the lead-up to the deal.

The U.S. and Vietnam also reached a trade deal, announced by Trump on July 2. However, Vietnam reportedly did not confirm the terms announced by Trump, leaving some uncertainty around the agreement.

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The Trump administration's tariff policies have been a significant aspect of their economic strategy. Prior to the "Liberation Day" announcement, the administration had implemented several tariff policies, including duties on steel and aluminum imports, as well as tariffs targeting China, Canada, and Mexico.

The average U.S. tariff rate had increased to approximately 12% by the time of the announcement, the highest level since World War II according to Deutsche Bank Research. This was due in part to a 25% tariff on imported automobiles and automotive parts, which was scheduled to take effect at midnight on April 3, 2025.

The Trump administration views tariffs as a versatile tool, with three primary ways of utilizing them. Here are the three ways tariffs are used by the Trump administration: