The United States is set to undergo significant trade policy changes under President Donald Trump's administration, as an extensive review of US trade relationships has been launched. Although no new tariffs were announced on his first day in office, a memorandum was issued to initiate a comprehensive investigation into trade deficits, unfair practices, and currency manipulation, with a particular focus on China, Canada, and Mexico.
Potential overhaul of trade policies
The Secretary of Commerce and the US Trade Representative will assess existing trade agreements, including the United States-Mexico-Canada Agreement (USMCA), anti-dumping duties, counterfeit products, discriminatory taxes, and duty-free exemptions. The feasibility of an External Revenue Service (ERS) to collect trade-related revenues will also be explored.
Regarding China, the administration will evaluate compliance with existing trade agreements, review legislative proposals, and examine the 2024 report on Chinese trade practices. Additionally, an assessment of US intellectual property rights in China will be conducted to recommend further measures.
Economic security measures, including import adjustments for critical industries, the effectiveness of import restrictions on steel and aluminium, and the impact of foreign subsidies on federal procurement, are also under review.
April deadlines for trade reviews
Three reports detailing the findings and recommendations are expected by 1 April 2025, with an additional report on foreign subsidies due by 30 April. However, there remains a possibility that President Trump could invoke the International Emergency Economic Powers Act (IEEPA) to impose tariffs before the reviews are completed.
If the President declares a national emergency under IEEPA, tariffs could take effect immediately without congressional approval. Although legal challenges would likely arise, precedent exists, such as President Richard Nixon's 1971 decision to impose a 10% tariff on all imports under different legal provisions.
Canada and Mexico in the spotlight
President Trump signalled potential tariffs on Canada and Mexico, stating, 'Tariffs of 25% on Mexico and Canada could take effect starting 1 February.' These two countries accounted for nearly one-third of all US imports in 2023, with key categories including agricultural products, food, automobiles, metals, and industrial goods. If implemented, the tariffs could significantly impact supply chains and consumer prices.
Watch for actions, not just words
While past threats of tariffs, such as Trump's 2019 announcement of a 5% tariff on Mexican imports, did not materialise, experts advise caution. In 2019, the tariff plan was withdrawn before it became official, as no formal proclamation was issued. However, given Trump's track record of market disruption, analysts warn against assuming similar outcomes this time.
Trade outlook for 2025
Despite uncertainties, trade in goods is projected to grow by 2.5% in 2025, driven by front-loading in the first quarter and increased intra-continental trade. However, targeted tariffs may be used as leverage in negotiations, potentially delaying full-scale implementation.
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