The geopolitics of trade tariffs: The new Trump presidency

Ana Peres

Since taking office on 20 January 2025, US President Donald Trump has imposed trade tariffs on all steel and aluminium imports, and increased tariffs on China, Canada and Mexico. He has threatened to impose more tariffs on other countries to achieve different geopolitical goals.

This Insight looks at the role of trade tariffs in the current geopolitical context and effects on the UK. It highlights the unpredictability of Trump’s policies in a fast-moving area

What are trade tariffs?

Tariffs are taxes that countries can impose on imports. They are paid by the importing business. Research shows that businesses pass on much of the cost of tariffs through higher prices. This is why tariffs are sometimes described as ‘taxes on consumers’.

Tariffs have two main economic effects. First, they grant a price advantage to domestic products and national industries since they do not pay tariffs. Second, tariffs raise revenues for the importing country.

Are tariffs legal in international law?

Tariffs are considered an acceptable trade tool in international law. World Trade Organization (WTO) member states have agreed to bind their tariff rates to certain upper limits, which are different for each state. If a country increases its tariffs beyond its limits, it could be violating its WTO obligations.

If a country applies different tariffs to different countries’ imports, it could violate the WTO most-favoured-nation principle, which prevents governments from discriminating between trade partners. Such violation could lead to trade disputes before the WTO Dispute Settlement System. The WTO’s Appellate Body is not currently functioning, which may complicate the resolution of potential trade disputes.

Countries joining free trade agreements also seek to further reduce, or even eliminate, the tariffs they have already committed to in the WTO. The lower tariffs then apply to the other parties to the free trade agreement. The goal is to promote better trade terms and improve trade flows between strategic trade partners.

Are tariffs only an economic tool?

While historically an often-used economic tool, tariffs became much less used after the Second World War. Tariff rates fell leading to an increase in international trade as countries sought profit by reducing trade barriers and increasing their exports.

Traditional trade arrangements, such as the WTO and free trade agreements, build on ideas of free trade and market access, whose economic benefits are supported by the principle of comparative advantage. This says that countries should focus on what they produce best and trade it with other countries, which should then promote economic efficiency by lowering prices and improving welfare, resource allocation and access to better goods and services.

More recently, countries have started to use tariffs again as part of industrial policies to promote goals such as development (PDF), the green transition and security. However, the Council on Foreign Relations think tank notes that tariffs can often lead to inflation, international retaliation, and less availability of products for consumers.

For example, during his first presidency, Donald Trump raised tariffs on imported products from China and other countries. The reasons behind such increases included national security and protection of strategic domestic sectors, such as aluminium and steel. Affected countries raised their tariffs in retaliation. Analyses suggested that such tariffs reduced incomes and exports and affected consumers and workers. The studies also indicate that tariffs made the US and China “worse off”.

How do tariffs become a geopolitical tool?

Countries can use tariffs and other trade measures for geopolitical reasons (such as national security or environmental protection); that is, the goal is to influence the balance of power between states, not to secure profit or economic welfare. Geopolitics explains states’ behaviour according to power distribution and global leadership disputes.

Powerful countries such as the US started adopting policies on geopolitical rather than economic or legal grounds. This results in the protection of strategic economic sectors from international competition or interference in a context of changes to power balances.

Countries might seek to improve their geopolitical position by ensuring access to valuable resources, such as critical raw materials, semiconductors or digital technologies, and building or joining resilient supply chains. For example, China, the EU and the US have implemented different measures to limit the access of certain foreign electric vehicles to their domestic markets and to secure a leadership role in the global electric vehicles supply chain.

Countries might use trade tariffs as a geopolitical tool to achieve domestic objectives and to keep or claim global leadership. These new policies can undermine international cooperation and economic interdependence, at a time when many say international rules and institutions are under increasing strain.

What are the recent tariffs announced by President Trump?

On 1 February 2025, President Trump announced tariffs on imports from three of the biggest US trade partners: Canada, Mexico and China. On 11 February 2025, he announced tariffs on all steel and aluminium imports. Mr Trump has also said he intends to increase tariffs on imports from other countries.

China, Mexico and Canada

The legal basis for the measures on China, Mexico and Canada is a national emergency under the International Emergency Economic Powers Act (IEEPA): Mr Trump said the tariffs were a response to the threats posed by illegal immigrants and drugs, particularly fentanyl. Despite the delay by one month, the 25% tariff increases on imports from Canada and Mexico were implemented on 4 March 2025.

On 6 March 2025, Mr Trump exempted imports from Canada and Mexico that satisfy the certain ‘rules of origin’ requirements (which means that those goods receive the label “made in Canada” or “made in Mexico”). These rules come from the United States–Mexico–Canada agreement (USMCA), a free trade agreement negotiated during the first Trump administration. He also reduced to 10% the tariffs on Canadian energy products and on Canadian and Mexican potash that fall outside the USMCA preference rate.

There are questions over the grounds for these measures and how effective they will be. Geopolitical tensions between the US and China are growing over economic supremacy and access to energy resources and technological expertise. The new tariff increases on Chinese imports, totalling 20%, have been described by the Council on Foreign Relations as an attempt to rebalance trade relations and address the effects of China’s approach to growth and trade.

Targeting Canada and Mexico appears to violate the USMCA. It is also likely to disrupt supply chains, especially for automobiles, and affect US consumers by, for example, increasing food prices.

Tariffs on other countries

President Trump has imposed a 25% tariff on all aluminium and steel imports from 12 March 2025 to protect domestic industries and jobs. This is likely to increase the price of essential inputs to many US manufacturers.

President Trump has threatened to impose reciprocal tariffs, which would increase US tariffs to the same level as those imposed by other countries on American imports. These new tariffs would also respond to what the Trump administration views as unfair non-tariff measures and burdensome requirements on American businesses. This measure would pressure US trade partners to reduce their WTO-bound tariffs and change their practices and regulations.

Besides violating WTO rules, the planned measure does not acknowledge that, while US tariffs on industrial goods are low, its agricultural tariffs are usually high, which contradicts its efforts to ensure reciprocity. Demanding reciprocity can have broader implications, affecting different US economic sectors.

Response to tariffs

In response, Canada, China and the EU announced countermeasures targeting US exports and industries, that is, retaliation, with other countries expected to follow. This results in more protectionism and could increase international instability and distrust.

For example, Canada announced that it would bring disputes before the WTO and the USMCA, besides imposing a 25% tariffs on $155 billion worth of imported goods from the US, beginning immediately with a list that includes orange juice, peanut butter, wine, spirits and beer.

China also filed a dispute in the WTO and announced retaliation targeting, among others, US farm imports and implementing export controls on 15 companies. The EU announced it will impose countermeasures on £22 billion worth of imported goods from the US, including industrial products, household tools, plastic and wooden goods.

What are the consequences for the UK?

The US is the UK’s largest single trading partner. President Trump has not decided on specific tariffs on imports from the UK.

If imposed, tariffs would be likely to adversely affect the UK economy, although the effects would vary depending on the industry and the measures the US implements concerning other countries. The meeting between President Trump and Prime Minister Keir Starmer on 27 February 2025 raised hopes that a UK–US trade deal may be reached, allowing the UK to avoid tariffs.

Mr Trump has threatened to impose tariffs on imports from the EU citing the US trade deficit as the main reason. The EU and the US also have different positions on topical global issues, such as regulation of technology companies, food standards and environmental policies.

This tension could affect the UK’s goals to have a closer partnership with the US and reset its relations with the EU. Keir Starmer stated that the UK will not choose a side between the EU and the US as both relations are important to the UK. If the US imposes tariffs only on EU products, exempting imports from the UK, the differences in tariff rates may have important implications for Northern Ireland.

The UK Government is also committed to a rules-based trading system, supporting international rules and institutions that govern trade relations.