Trump Tariffs, US Stands to Lose More than Gain

By: Damini Mehta

The U.S. is a net consumer nation, importing more than it produces domestically. High labour and raw material costs make domestic production more expensive than importing a wide range of goods. This reliance on imports provides access to cheaper goods and services from countries with lower labour costs.

On March 4, 2025, the United States imposed a series of tariffs on imported goods. Shortly thereafter, President Donald Trump announced a one-month delay in implementing these tariffs on imports from Mexico and Canada.

During his previous term, President Trump signed the United States-Mexico-Canada Agreement (USMCA), updating the prior free trade pact among the North American countries. The recent tariffs, aligned with Trump's economic policies to promote domestic manufacturing and job growth, appear to contradict the principles of the USMCA.

The United States remains the world's largest economy, with the US Dollar serving as the default currency for global trade. Consequently, changes in U.S. economic policies can have widespread global repercussions. Some of President Trump's policies, particularly those imposing tariffs to reduce U.S. dependence on other countries, suggest a limited understanding of the interconnectedness and interdependence of the global economy.

The U.S. is a net consumer nation, importing more than it produces domestically. High labour and raw material costs make domestic production more expensive than importing a wide range of goods. This reliance on imports provides access to cheaper goods and services from countries with lower labour costs. Imposing tariffs as high as 25% on countries like Canada and Mexico, and an additional 10% on China, could harm the U.S. economy as much as these trading partners.

In terms of foreign trade, Mexico accounts for 16% of U.S. imports, followed by China at 14% and Canada at 13%. Collectively, these three countries, now targets of the tariff policy, constitute 43% of U.S. imports. The tariffs not only challenge exporters from these nations but also mean U.S. markets may face a massive price increase on these goods, potentially inducing inflation.

Conversely, retaliatory tariffs by these countries on U.S. exports could harm American manufacturers. 17% of U.S. exports are directed to Canada and Mexico each, with 7.1% going to China.

The U.S. has consistently run a trade deficit since 1976, driven primarily by imports of oil and consumer goods. In January 2025, the U.S. posted a record trade deficit of $131.4 billion, up from $98.1 billion in December 2024. This surge was largely due to businesses front-loading imports ahead of the anticipated tariffs. Imports to the U.S. rose 10% to an all-time high of $401.2 billion, while exports increased by a modest 1.2% to $269.8 billion. Consequently, the U.S. goods trade gap widened with China ($29.7 billion vs. $25.3 billion in December 2024), Mexico ($15.5 billion vs. $15.3 billion), Vietnam ($11.9 billion vs. $11.4 billion), Canada ($11.3 billion vs. $7.9 billion), and the EU ($25.5 billion vs. $20.4 billion).

In 2022, the largest trade deficits were recorded with China, Mexico, Vietnam, and Canada. The most significant trade surpluses were with the Netherlands, Hong Kong, Brazil, Singapore, Australia, and the United Kingdom. Canada continues to be the top trading partner, accounting for 15% of total trade, followed by Mexico at 14% and China at 13%.

President Trump rationalized the imposition of tariffs to boost domestic manufacturing and employment. However, studies by economists at institutions such as the Massachusetts Institute of Technology, Harvard University, the University of Zurich, and the World Bank indicate that tariffs imposed during his previous term in 2018 had no significant impact on U.S. employment.

The recent decision by the Trump administration to delay tariffs on Mexico and Canada by a month reflects growing domestic and international opposition to these policies. This postponement suggests that the U.S. economy may stand to lose more than it gains if these tariffs are implemented in April.