The cost of protectionism: Trump’s tariffs could backfire on the US

Trump's tariffs war
Trump’s tariffs risk triggering inflation, retaliatory trade measures, and an economic downturn that may force him into a tactical retreat.

Trump’s tariffs war: President Donald Trump has once again wielded tariffs as his economic weapon of choice. Citing national security and the need to curb illegal immigration and drug trafficking, Trump has imposed steep tariffs on imports from Canada, Mexico, and China — America’s three largest trading partners. These duties include a 25% levy on all imports from Mexico and Canada (with a 10% carve-out for Canadian energy products) and a 10% tariff on Chinese goods.

While Trump frames these tariffs as necessary for protecting American interests, they come with significant economic consequences, raising concerns about inflation, supply chain disruptions, and potential retaliatory measures from affected nations. The tariffs could also put pressure on the US economy, leading to higher consumer prices and slower growth, which could force a tactical retreat by Trump if the economic fallout proves too severe.

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National security or economic policy

Historically, tariffs have been used to protect domestic industries and create leverage in trade negotiations. However, Trump’s latest tariff measures are being justified on grounds that go beyond economics. The administration claims that Canada and Mexico are not doing enough to curb the flow of fentanyl and illegal immigration into the US. Similarly, China is accused of failing to stop the export of fentanyl precursors, leading to the ongoing opioid crisis in America.

By framing the tariffs as a response to a national security threat, Trump sidesteps traditional economic arguments. However, economists warn that such trade restrictions may not achieve their intended security objectives while causing major disruptions to US industries and consumers.

The Canada and Mexico fallout

Canada and Mexico have been quick to retaliate. Canadian Prime Minister Justin Trudeau announced a 25% counter-tariff on US imports worth $155 billion and encouraged Canadians to boycott American goods. Provincial governments have also begun removing US alcohol brands from state-controlled liquor stores. Meanwhile, Mexican President Claudia Sheinbaum has issued retaliatory measures, imposing tariffs on US agricultural and manufacturing imports.

These retaliatory tariffs are likely to strain key industries, particularly in the US Midwest, where Canada is a primary supplier of crude oil. The Midwest refines much of this oil, meaning that higher import costs could quickly translate into rising fuel prices at the pump. Likewise, Mexico’s countermeasures could drive up food prices in the US, particularly for fresh produce such as avocados and tomatoes, which are heavily imported from south of the border.

China’s response: Strategic retaliation ahead?

Unlike Canada and Mexico, China has taken a more measured approach, with its ministry of foreign affairs stating that Beijing will take necessary countermeasures and file a case against the US with the World Trade Organisation (WTO). The Chinese government has not yet imposed specific retaliatory tariffs, but past trade disputes suggest that Beijing could target key US exports such as soybeans, aircraft, and high-tech products.

The broader implications of these tariffs may not be immediately visible, but they risk further damaging an already strained US-China trade relationship. Given China’s growing partnerships with alternative trade allies like the European Union, ASEAN countries, and Latin America, the US could find itself increasingly isolated in global markets.

Hidden cost to American consumers and businesses

While Trump insists that tariffs will benefit American workers by bringing back manufacturing jobs, the economic reality is more complex. Tariffs are effectively a tax on imports, and businesses that rely on foreign goods will either have to absorb the costs or pass them on to consumers.

The tariffs could increase US inflation by 0.4 percentage points this year. The Budget Lab at Yale University estimates that the average American household will lose between $1,000 and $1,200 in purchasing power due to rising costs.

Trump’s tariffs war: Sectors most affected include:

Automobiles: The US imports $87 billion worth of vehicles from Mexico annually. Tariffs could raise vehicle prices by as much as $3,000 per car.

Agriculture: Mexico supplies over 60% of US vegetable imports. Tariffs could significantly increase grocery bills.

Energy: The 10% tariff on Canadian oil and natural gas may lead to higher gasoline prices, especially in Midwestern states.

Electronics and consumer goods: Many components used in US electronics manufacturing originate in China. Higher costs on these imports will make consumer electronics more expensive.

Economic consequences for the US

Economists warn that these tariffs could slow economic growth. The US economy, which expanded by 2.8% last year, is projected to shrink by 1.5% in 2025 and 2.1% in 2026 if the tariffs remain in place. While the tariffs may generate $100 billion in tax revenue annually, this gain will be offset by job losses, business closures, and an overall reduction in GDP.

Industries that rely on cross-border supply chains will be particularly vulnerable. The automotive sector, for example, depends on complex trade networks spanning the US, Mexico, and Canada. Raising tariffs on auto parts could result in higher production costs, leading companies to either cut jobs or move production offshore to avoid the levies.

What comes next — a trade war or a tactical retreat?

If history is any guide, the current tariff escalation may not be the end of the story. Trump has signalled that he could increase tariffs even further if US trade partners retaliate. However, prolonged trade wars have historically resulted in negative economic consequences for all parties involved

Past examples, such as the 2018-2019 US-China trade war, demonstrate how tit-for-tat tariffs can harm American farmers, increase manufacturing costs, and slow economic growth. This time, with both Canada and Mexico directly in the line of fire, the consequences could be even more severe.

The question remains: will Trump’s tariffs force America’s trading partners into submission, or will they backfire by isolating the US and exacerbating inflation? For now, businesses, consumers, and economists alike are bracing for impact.

Trump’s tariffs may fulfil campaign promises, but they come with economic risks that could outweigh the intended benefits. If history has shown anything, it is that protectionist policies often lead to higher costs for consumers and businesses, supply chain disruptions, and retaliation from trade partners. Whether these measures strengthen American manufacturing or push the country toward an economic downturn remains to be seen.

For now, one thing is certain — the global economic order is changing, and Trump’s tariffs are accelerating that transformation. The coming months will determine whether the US economy can withstand the ripple effects of this aggressive trade policy or whether it will suffer the very consequences Trump claims to prevent.