Written by Gisela Grieger.
When Donald Trump was elected President of the United States (US) for the second time in 2024, the world knew that tariffs would again be the US trade policy instrument of choice. Two months into his second term, the President announced universal tariffs on aluminium and steel; a month later, on cars and car parts; and on 2 April 2025, reciprocal tariffs ranging from 11 % to 50 % on imports from countries running a trade in goods deficit with the US, and universal tariffs of 10 % on imports from almost all other countries. As the US Congress is working on a long-term budget reconciliation bill, it is unclear whether the US import tariffs are meant as a permanent source of revenue to partly fund tax cuts, to be renewed and extended in that bill, and/or as ‘incentives’ for bilateral deals. While the latest tariffs may not even mark the last step, the responses to them fall into three categories: China has opted to retaliate; India and Israel have entered into negotiations to reach a deal with President Trump; and the EU has pursued a staged approach of targeted retaliation and openness to negotiation.
Priorities of the America First Trade Policy: An overview
On 20 January 2025, President Trump signed an ‘America First Trade Policy‘ presidential memo that directs his administration to look into trade issues organised around three sections, with an outsized role for tariffs.
The first section concerns unfair and unbalanced trade, and orders a review of the causes of persistent US trade deficits, and unfair foreign trade practices including currency manipulation and discriminatory or extraterritorial foreign taxes (e.g. digital services taxes). The memo also seeks a review of the impact of existing trade agreements, including the plurilateral Agreement on Government Procurement under the World Trade Organization (WTO), on the volume of federal procurement; a review of US trade defence instruments; and an assessment of the tariff revenue loss and national security risk of maintaining the US de minimis tariff exemption for shipments whose value is US$800 or below. The latter tariff exemption largely benefits Chinese e-commerce companies. The memo moreover mandates the Trump team to assess the potential establishment of an External Tariff Revenue Service, and to identify potential new (sector-specific) trade agreements that could be concluded to create US access to new export markets.
The second section orders a review of the US trade and economic relations with the People’s Republic of China (PRC), including the 2020 Phase One deal and the US tariffs imposed since 2018 on large parts of US imports from the PRC under Section 301 of the Trade Act of 1974 for unfair trade practices (e.g. theft of intellectual property rights and forced technology transfer), and to take note of the 2024 four-year review. The memo also asks for recommendations as regards legislative proposals for the potential withdrawal of permanent normal trade relations (most-favoured nation treatment) the US granted the PRC in the past.
The third section covers trade issues linked to economic security. The memo orders a review of US supply chains, and specifically assesses the capacity and output rates of industrial sectors vital for US economic and national security, such as aluminium and steel, and could thus also come under US import tariffs on national security grounds. It asks for a review of the US export control and outbound investment regimes and the potential distortive nature of foreign subsidies for US federal procurement programmes (unlike the EU, the US has no specific legislation on distortive foreign subsidies in place), as well as the unlawful migration at the US southern border and unlawful fentanyl inflows from Canada, China and Mexico.
Rapid roll-out of several US tariff rounds
On 1 February 2025, President Trump imposed tariffs on imports from Canada and Mexico (25 %) and from China (10 %) in the context of unlawful migration and fentanyl flows. He declared a national emergency under the International Emergency Economic Powers Act (IEEPA) of 1977, to address these two crises. Although IEEPA provides broad authority to the US President, US legal scholars have argued that the law ‘does not explicitly grant tariff authority’ to him, stressing that the terms ‘duty’ or ‘tariff’ appear nowhere in the legislation. Former US presidents, and most recently Joe Biden, have used the legal basis to impose sanctions (e.g. against Russia for its war of aggression against Ukraine) but never for imposing tariffs.
On 11 February 2025, President Trump reinstated tariffs on aluminium (increasing the tariff rate from 10 % to 25 %) and steel (extending the scope to the derivatives of both metals), based on investigations carried out during his first term under Section 232 of the Trade Expansion Act of 1962. According to the President’s proclamations, recent US data show that the US industrial capacity and output of both industries dropped below 80 %, and increased imports of these metals are allegedly supressing domestic production and are therefore again deemed a threat to national security. The steel and aluminium tariffs entered into force on 12 March 2025. On 26 March 2025, President Trump announced car and car part tariffs of 25 % based on Section 232 investigations that were not implemented during his first term. Car tariffs entered into force on 2 April 2025.
On 2 April 2025, President Trump issued an executive order under his IEEPA authority, announcing sweeping country-specific reciprocal tariffs of between 11 % and 50 % on US imports from a list of Annex 1 countries, applicable from 9 April 2025, and universal tariffs of 10 % on US imports from almost all non-Annex 1 countries, applicable from 5 April 2025, to address persistent US trade in goods deficits. Exceptions are imports from countries that are under US sanctions, and some energy imports and items under other US tariffs or possible US tariffs (e.g. pharmaceuticals, semiconductors). Section 4 of the executive order leaves the door open for additional tariff action; it notably threatens unilateral upward tariff modifications for countries that retaliate, or if US manufacturing capacity and output continue to worsen, while showing readiness to decrease tariffs if countries align their trade policy with US interests. While Trump tasked his administration with incorporating tariff and non-tariff barriers (digital services taxes, value added taxes, or currency manipulation) into tariff calculations, it appears from the formula that instead it drew its estimates for the reciprocal tariffs only on US trade in goods deficits with individual countries, setting a minimum of 10 % tariff even for countries with which the US runs a trade in goods surplus. By contrast, trade in services surpluses that the US runs with many of its trade partners are not taken into account.
Continuity of and changes in tariff policy under the first and second Trump terms
As during his first term, President Trump’s focus in his second term is on reducing the growing US overall trade in goods deficit (US$1.2 trillion in 2024). He continues to adhere to the argument that the US trade deficit is caused by US trading partners’ unfair trade and exchange rate policies, although many economists have dismissed this argument, stressing macroeconomic factors (a persistent savings-investment gap) and global shifts, including the US focus on services. However, the scale and scope of the US tariffs deployed in 2025 are significantly different. According to US Tax Foundation estimates, the first Trump administration imposed tariffs on imports worth about US$380 billion in 2018 and 2019, while the second Trump administration’s tariffs announced so far cover US imports worth more than US$2.5 trillion. In contrast to his first term, President Trump has not allowed exceptions for his aluminium, steel or car/car parts tariffs except for imports under the US-Mexico-Canada free trade agreement. Trump has expanded the scope of his tariff policy to include non-trade issues, notably the migration flows via the US border with Mexico and inflow of fentanyl via the borders with Canada and Mexico and from China. He has added a new legal basis, IEEPA, to declare a national emergency that grants the President more flexibility than the other two legal bases used in his first term. Finally, and differently from Trump’s first term, the much higher revenue from US import tariffs could be intended to partially fund a renewal and extension of 2017 tax cuts, to be adopted in 2025 by Congress in a budget reconciliation bill currently under debate, and boost reshoring.
The new US tariffs are likely to reshape the global trading system. The first Trump term already caused major cracks in that system by paralysing the WTO Appellate Body and by invoking a rarely used WTO national security exception to unilaterally impose universal aluminium and steel tariffs. In his second term, President Trump is expanding these tariffs to other sectors such as cars and car parts, although the justification for them was found to be inconsistent with WTO law. He has proceeded to full-scale unilateralism, breaking with WTO commitments on US-bound tariffs and the WTO most-favoured nation principle by imposing universal tariffs of 10 % on practically all US imports, as well as country-specific reciprocal tariffs based on a controversial calculation formula. Finally, the second Trump administration appears to have withdrawn from the WTO ‘special and differentiated treatment’ granted to developing countries, which the US has been criticising for some time; several developing countries have been hit with the highest US reciprocal tariffs. This approach appears to be consistent with recent US steps to cut and reorganise US development aid.
Read this ‘at a glance’ note on ‘What to make of the 2025 US tariff policy?‘ in the Think Tank pages of the European Parliament.
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