In One Sentence

• Just minutes after President Trump announced his sweeping 10% tariffs on all Chinese imports, China announced retaliatory tariffs on select American imports and an antitrust investigation into Google. 
• President Donald Trump agreed to delay the 25% tariff on imports from Canada and Mexico for a 30-day period, as both countries announced moves to ramp up security at their borders, while describing the 10% tariff on Chinese imports as just the “opening salvo”.
• The latest AmCham survey reveals that U.S. businesses in China are increasingly concerned about heightened U.S.-China tensions, with more companies considering relocating despite recognizing the importance of positive bilateral relations for business growth, while a majority anticipate further deterioration in U.S.-China ties in 2025.
• President Trump has announced plans to impose new tariffs on semiconductors, pharmaceuticals, steel, and other products as part of his strategy to incentivize domestic manufacturing, generate revenue, and use it as a negotiating tool, while also considering the use of executive powers to implement these measures.
• Despite an initial defiance, Colombia agreed to accept U.S. deportation flights following Trump’s threats of tariffs and restrictions, resulting in suspended tariffs but ongoing temporary restrictions.
• Howard Lutnick, nominee for Secretary of Commerce, backed broad tariffs for trade fairness reasons, especially with China, despite economists’ warnings of widespread negative impacts.

Mark the Essentials

• The White House announced earlier that Chinese President Xi and President Trump were scheduled to speak over the tariffs issues, yet later said that the call was cancelled following China’s announcement of its retaliatory measure.
• Trump ordered Treasury Secretary Scott Bessent and the U.S. Trade Representative to draft retaliatory measures, including tariffs and recourse to Section 891 of the U.S. Internal Revenue Code, which allows the president to double the tax rate on foreign persons in the U.S. if he determines that their sovereigns are subjecting U.S. citizens to discriminatory or extraterritorial taxes.
• At Davos, Trump said that he views Canada and the EU as unfair trade partners, citing trade deficits, restrictive policies, and penalties on U.S. firms, and has threatened tariffs on both.
• Canada this past Sunday released a full list of U.S. products that would be subject to its retaliatory tariffs, including alcohol, household appliances, tools, firearms, dairy products, fruits, vegetables, and clothing, worth an estimated USD 20 billion.
• Former Sen. Pat Toomey of Pennsylvania criticized Trump’s tariff plan as contradictory, arguing that tariffs cannot both raise revenue and revive domestic manufacturing without raising consumer costs, while warning that aggressive tariffs will provoke retaliation, particularly against U.S. agriculture.
• Chinese Vice Premier Ding Xuexiang reaffirmed China’s opposition to trade wars and protectionism at the World Economic Forum in Davos, emphasizing their harm to all nations and urging global cooperation.

Keeping an Eye On…

• The new round of trade wars under Trump 2.0 is upon us. It took just 14 days for the first shots to be fired, and that too at a time when President Trump’s U.S. Trade Representative is yet to be confirmed. In Trump 1.0, it took 14 months before the first (steel and aluminum) tariffs were introduced. This new round of trade wars will be more protracted and disruptive than its predecessor. While Canada will likely get away relatively lightly (the U.S. actually runs a large trade surplus with Canada if one strips away the energy and resources trade), Mexico and, down-the-line, the European Union, will face a harder slog (the end of the free trade arrangement with Mexico could well be on the anvil, post-2026). As for China, the tit-for-tat reprisals could well be off-the-charts. Beijing is already showing that it is not about to turn the other cheek, though its reprisals will be measured and on its own terms. Oh, what a different age we live in from Trump 1.0 when the The Donald and Mr. Xi were gently nuzzling each other in Mar-a-Lago within three months of his inauguration. This time around, a full-blown trade and technology war could well be underway three months into Trump 2.0. Folks, it’s time to buckle up for a bumpy ride.

Be that as it may, at this early date when the first shots have just been fired (and some pulled back), it is once again useful to recapitulate the philosophical, practical and political drivers of Mr. Trump’s obsession with the tariff instrument. In the president’s view, goods that are consumed in the U.S. must be produced at home using American workers. To the extent that some of these goods must be imported from overseas, an equivalent dollar amount of American goods should be purchased by that relevant country. At day’s end, bilateral trade should be balanced. Anything less is a ‘loss’ for the U.S. And, hence, his dislike of the sort of large bilateral trade surpluses run by China, and his sense of personal affront when they are especially run by allies and partners, such as the European Union, Canada, Japan, South Korea, and Taiwan, which happen to doubly benefit from expensive treaty-underwritten or implicit U.S. defense guarantees. This amounts to a “double screw” of America, “a real trick”, in Trump’s own words.   

From a practical standpoint, tariffs backed by the heft of the American consumers’ purchasing power provides useful leverage to instigate dealmaking with foreign countries on a variety of trade and non-trade concerns – be it striking up quantitative purchase targets of U.S. goods to balance trade, bending foreigners to equalize tariff levels with that of the U.S.’ to level the playing field, or shutting down illegal immigration and drug trafficking passageways. In the post-CHIPS Act/IRA era, tariffs can also be a useful and cost-free industrial policy tool to reshore production, rather than have to dispense massive grants or subsidies to foreigners. Besides, in his view, the last time (almost) across-the-board tariffs were imposed on China and more selectively but universally on steel and aluminum items, the U.S. economy still came away with a healthy economy and the fastest real wage gains of any presidency in the 21st century. So why wouldn’t it be the case again in Trump 2.0? And the Treasury earned handsome revenues too. As for the politics of tariffs, isn’t the ‘forgotten man’ a white, non-college educated, non-unionized worker who resides in a small or medium size-town town in a purple state? Tariff protectionism fits in just right.  

There is much that can be challenged about President Donald Trump’s philosophical and practical view of the value of tariffs. But that’s a conversation for another day. As for now, and as a new round of trade wars in Trump 2.0 gets underway, it is worth recapitulating these drivers of Mr. Trump’s own thinking on the issue.

Expanded Reading

• Trump Orders Treasury to Investigate Discriminatory Taxes, Tax Notes, January 20, 2025
• Trump Criticizes Europe and Threatens Tariffs in Davos Speech, The New York Times, January 23, 2025
• Canada Releases List of Products Covered in Retaliatory Tariffs on US Goods, The Economic Times, February 2, 2025
• Trade War Has No Winners, China’s Vice Premier Warns, as Trump Threatens Tariffs, CNBC, January 21, 2025
• Trump to speak with China’s Xi on Tuesday, trade adviser Navarro says, Reuters, February 4, 2025
• China counters with tariffs on US products. It will also investigate Google., AP News, February 4, 2025
• Trump in no hurry to talk to Xi amid new tariff war, Reuters, February 5, 2025