The Trump tariff doctrine: a trade policy rewritten

Donald Trump’s rationale for raising tariff barriers was rooted in a belief that the US had been taken advantage of by trading partners, particularly China, and that decades of free trade had hollowed out American manufacturing.

Mr Trump’s “America First” doctrine emphasised economic nationalism. He argued that tariffs would protect domestic industries, reduce trade deficits, and bring jobs back to the US heartland. His administration imposed sweeping tariffs on steel and aluminium imports, citing national security concerns, and launched a trade war with China, targeting hundreds of billions of dollars in goods.

In his second term, President Trump has doubled down. He proposed “universal baseline tariffs” on all imports and threatened punitive tariffs on countries that fail to curb illegal immigration or drug trafficking, including Mexico and Canada. These moves are not just economic tools but also geopolitical levers, used to pressure foreign governments into broader concessions.

The market reaction to tariffs

The financial markets have responded to Trump’s tariff policies with a mix of volatility and resilience. During his first term, markets initially dipped on tariff announcements but often rebounded as investors bet on eventual deals or exemptions. However, sectors heavily reliant on global supply chains – such as automotive, technology and agriculture – suffered from uncertainty and retaliatory tariffs.

In 2025, the pattern has repeated. Following Mr Trump’s renewed threats against China, Mexico, and Canada, the dollar strengthened against the peso and Canadian dollar, reflecting investor concern over trade disruptions. Yet, major US stock indices have now erased most of these losses, buoyed by optimism over Trump’s broader economic agenda, including tax cuts and deregulation.

Still, the Organisation for Economic Co-operation and Development (OECD) recently slashed its US growth forecast, citing the chilling effect of tariffs on investment and global trade flows. American farmers and manufacturers, already bruised from the first trade war, are bracing for more pain as foreign markets impose retaliatory duties.

The watering down of proposals

Despite President Trump’s aggressive rhetoric, many of his most extreme trade proposals have been moderated or delayed in implementation. During his first term, the administration often walked back threats after backlash from businesses, allies, and even within the Republican Party. For example, proposed auto tariffs on European imports were shelved after negotiations with the European Union (EU).

In his current term, similar dynamics are at play. While President Trump has floated sweeping tariffs, his cabinet includes figures such as hedge fund manager Scott Bessent and financier Howard Lutnick – both known for their scepticism of protectionism. Their influence may temper the administration’s approach, turning bombastic threats into bargaining chips rather than policy certainties.

Moreover, Congress has shown signs of resistance. Lawmakers from both parties, particularly those representing export-heavy states, have pushed back against blanket tariffs that could harm their constituents. This political friction has led to delays and revisions in Trump’s trade agenda.

Where we are now

As of mid-2025, Trump’s trade policy is in a state of flux. The administration has reimposed and expanded tariffs on Chinese goods, citing continued intellectual property theft and unfair subsidies. It has also targeted imports from Canada and Mexico that allegedly violate the spirit of the United States-Mexico-Canada Agreement (USMCA), signed in 2020, particularly in the auto and dairy sectors.

New tariffs have been proposed on pharmaceuticals, semiconductors, and critical minerals such as copper and lithium – sectors deemed vital to national security. Meanwhile, Mr Trump’s call for “reciprocal tariffs” on countries with higher import duties than the US has sparked fears of a global tit-for-tat escalation.

The global response has been cautious but firm. China has resumed some retaliatory tariffs, while the EU has warned of World Trade Organisation (WTO) challenges. Trade partners are also exploring alternative markets and supply chains to reduce dependence on the US, a trend accelerated by the unpredictability of Trump-era trade policy.

What could the final result look like?

The long-term outcome of Trump’s trade strategy remains uncertain. If fully implemented, his tariff regime could reshape global commerce, forcing companies to reconfigure supply chains and prompt a wave of reshoring to the U.S. That could benefit some domestic industries – but at the cost of higher consumer prices and strained international relations.

Alternatively, Trump’s tariffs may serve primarily as negotiating tools, leading to revised trade deals that include more favourable terms for the US. This was the case with the USMCA, which replaced the North America Free Trade Agreement (Nafta) after intense negotiations and threats of withdrawal.

However, the risk of miscalculation is high. Prolonged trade wars could dampen global growth, trigger inflation, and erode America’s leadership in the rules-based international trading system. Allies may grow weary of the US’s transactional approach, seeking deeper ties with more predictable partners. It is likely to be a fraught G7 Summit in Canada between 15 and 17 June.

However, July is when we will see some of the most important deadlines in the trade battle are to be found. These dates represent critical junctures in the Trump administration’s trade strategy. The outcomes could significantly affect global supply chains, international relations, and economic forecasts.

• 8 July: “Liberation Day” tariffs are set to take effect. These follow a 90-day suspension period and could impact imports from multiple countries.
• 9 July: Deadline for the US and EU to reach a deal to avoid a 50% tariff on all EU imports into the US.
• 14 July: The EU’s 90-day pause on retaliatory tariffs ends. If no agreement is reached, the EU may impose countermeasures.

In the end, Trump’s trade policy is less about economics than about leverage. It reflects a worldview where trade is a zero-sum game and where tariffs are not just taxes but tools of statecraft. Whether this approach yields lasting gains or long-term damage will depend on how the world – and the markets – respond.