International Trade in the Trump Era: the Tariff War

InLaw Alliance  -  The re-election of President Donald J. Trump has led to a profound restructuring of international trade. True to his imposing and nationalist style, the US president has revived an old tool of economic pressure: tariffs. Thus, on 2 April 2025, through Presidential Decree 14257, entitled ‘Regulation of imports with a reciprocal tariff to correct trade practices that contribute to large and persistent US trade deficits in goods’, a new global trade war was formally launched.

This decree imposes reciprocal and additional tariffs on more than 90 nations in a deliberate attempt to reshape the United States’ trade balance, strengthen its domestic production, and exert geopolitical influence through its economic power.

Trump’s tariff strategy rests on three fundamental pillars: 
1) Revitalising and increasing domestic production, prioritising US manufacturers, encouraging the relocation of manufacturing and creating new jobs, which, in theory, would boost domestic economic growth.
2) Levelling trade conditions, arguing that the United States suffers from an unfair trade deficit resulting from tariff asymmetry: its export products face high barriers abroad, while its domestic market remains largely open to imports.
3) Influencing international policy, using tariffs as a tool to pressure allies and adversaries to align with Washington’s strategic interests, punishing those who stray from its sphere of influence.

However, the first objective is difficult to achieve. Industrial relocation involves millions in investment, long timeframes and structural challenges such as a shortage of skilled labour and increased production costs. All of this could translate into higher prices for the end consumer, affecting the purchasing power of US citizens.

Despite the difficulties inherent in the first pillar, the decree has had an immediate impact on the other two fronts: it has placed the United States’ main trading partners in a position of renegotiation, forcing them to rethink trade agreements under the threat of punitive tariffs. As a result, several countries rushed to enter into talks to mitigate its impact, succeeding in having the tariffs suspended and postponed until August of this year.

One of the most significant cases has been that of an old ally, the European Union (EU). Trump threatened to impose a 30% tariff on products from the bloc. After intense negotiations, a 15% tariff was agreed upon, with key exceptions. In exchange, the EU committed to purchasing US$750 billion worth of US energy, thereby reducing its energy dependence on Russia. In addition, a European investment of US$600 billion in the United States was agreed upon, without specific details on its sectoral destination.

Likewise, European Commission President Ursula von der Leyen announced that an agreement had been reached to eliminate bilateral tariffs on a list of essential goods, including aircraft and aircraft parts, agricultural products, semiconductor equipment, and strategic raw materials. However, key sectors such as automotive and pharmaceuticals were excluded, causing concern among European manufacturers.

With regard to China, his main trade competitor, Trump threatened to impose a 145% tariff on various imports. This measure brought President Xi Jinping to the negotiating table. The resulting agreement includes the suspension of export controls on rare minerals, over which China has a monopoly, for a period of one year. In exchange, the United States reduced tariffs on certain chemicals and exempted agricultural goods such as coffee, tea and fruit from duties. However, the 25% tariff on furniture imported from China remained in place, affecting numerous US companies. Beijing, for its part, announced that it would adjust its countermeasures, respecting the agreed exemptions.

In the case of Japan, another key ally, the initial threat of a 25% tariff was reduced to 15% for all products exported to the US. In exchange, Tokyo committed to investing $500 billion in the US and opening its market to the American automotive and agricultural industries, key sectors for Trump’s agenda.

In Latin America, tariff policy has served as both a trade instrument and a means of political pressure. Despite the existence of a free trade agreement with Mexico and Canada, Trump imposed a 35% tariff on Canada and a 25% tariff on Mexico, exempting only products covered by the existing agreement. In the case of Mexico, the tariff was subsequently reduced to 15% following President Claudia Sheinbaum’s commitment to intensify the fight against drug trafficking and illegal migration.

The country most affected has been Brazil, which has been hit with a 50% tariff, with the exception of 700 products. According to analysts, the measure is a political retaliation by the current Brazilian government against former President Jair Bolsonaro, an ally of Trump.

On the contrary, nations such as Argentina, Guatemala, El Salvador and Ecuador have been rewarded with preferential agreements for their political alignment. For example, Argentina will reduce tariffs on US machinery, while the US will eliminate taxes on its imports of natural resources. Ecuador, for its part, agreed to reduce tariffs on US vehicles, obtaining in exchange tariff advantages for its banana exports.

Trump’s tariff policy, although controversial, has proven to be an effective tool for repositioning the United States as a dominant player on the global economic stage. However, it raises serious questions: can a country sustain trade relations based on political loyalties? To what extent can these protectionist tactics lead to fragmentation of international trade and affect the legal stability of existing trade agreements?

History has taught us that trade not only moves goods, but is also a vehicle for diplomacy, cooperation and stability. If tariffs become political weapons, we run the risk of contaminating the principles that have sustained the global economic order for decades.

Author: Antonio Jose Guillen Villegas, of Guillen & Guillen Solicitors

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