Factsheet US foreign trade
Contrary to the fears of many, the new US President Trump did not impose any concrete tariffs at his inauguration.
Commerzbank Economic Research
01/27/2025
Tariffs initially as a means of combating illegal immigration...
Contrary to his campaign promises, Donald Trump did not start implementing massive tariffs on the very first day of his term of office. However, that is not to say that the all-clear has been given. He initially seems to want to use the threat of tariffs as a means of combating illegal immigration to the US.
Over the weekend, this was practiced with Colombia. The government of this country initially refused to grant landing permission for American deportation flights. Trump then threatened an immediate tariff of 25%, which would increase to 50% in a week (the US is Colombia's most important export market and imports goods from this country worth around 16 billion dollars annually). According to the White House, Colombia has responded by giving in, causing Donald Trump to refrain from implementing the threatened punitive measures.
According to press reports, there are growing signs that Trump could take action against Canada and Mexico as early as the weekend. Trump had held out the prospect of a 25% tariff on imports from Mexico and Canada, without committing to it. He mentioned February 1 as a possible date. He justified this by saying that these countries were not doing enough to prevent the flow of migrants and drugs such as fentanyl into the US. The additional 10% tariff on imports from China, which was also threatened, was justified by the fact that China supplies chemicals to produce fentanyl to Mexico.
These threatened measures have non-economic reasons. Trump probably focused on these points first because they are related to the issue that is presumably most important to his voters: border security. However, the manifest willingness to use tariffs is also likely to influence market participants' assessment of the probability of comprehensive tariffs.
...and soon also the high trade deficit?
Although the action against illegal immigration seems to have priority for the time being, the fight against the high trade deficit will probably become the main focus after that. Trump's announcement that he is considering setting up a new agency to collect customs duties and other levies in foreign trade, and his expectation that this will generate considerable revenues for the federal budget, also underlines the fact that he is serious about this. He also stated unequivocally in Davos that companies should produce in the US or face tariffs. His dealings with Colombia show that Trump does refrain from imposing tariffs if he is appeased in some other way. However, it is likely to be difficult for trade partners to commit to balancing the trade account.
We tend to see his statement about tariffs on Chinese products – “he would rather not have to use them” – as a negotiating tactic. If he were to view tariffs as inevitable from the outset, China would have no incentive to at least address some of his demands, such as the fentanyl issue.
Some members of Congress have already introduced a bill in the Senate and House of Representatives (with the support of Democrats in the latter) to withdraw China's status as a “permanent normal trade relations” country. According to the bill, a 100% tariff would be imposed on goods from China classified as strategic, and a minimum tariff of 35% would be levied on the rest. A robust approach against China has bipartisan backing.
Deadline April 1
One reason Trump has held back so far is that some of the potential legal bases for imposing tariffs require prior investigation. Accordingly, Trump has ordered a comprehensive review of US trade policy. The relevant agencies are to submit reports by April 1 on unfair trade practices by other countries, currency manipulation, discriminatory foreign taxes, and technology transfer practices. They are also to propose measures to reduce the trade deficit.
The relevant agencies are also instructed to verify whether China has fulfilled its obligations under the phase-one deal. This was concluded during Trump's first term in office. According to the trade data, China has not fulfilled the promised volumes of imports from the US.
On the basis of the analyses available in April, Trump then has a wide range of options for targeting individual countries, industries or entire groups of countries.
Tariffs against the foreign trade deficit
Tariffs are likely to play a major role in the efforts to reduce the US trade deficit, which Trump perceives as “unfair”. President Trump is focusing on the goods deficit. Outside the oil sector, this has widened in recent years, although the US now has a small surplus in oil products. The US has traditionally been a net exporter of services.
For full text see attached PDF-Version.