What Problems Is Trump Trying to Solve with Tariffs, and Why It Threatens an Economic Crisis

On March 4, the United States began to impose 25 percent duties on imports of goods from Canada and Mexico. The duty on imports of Chinese products was increased to 20 percent. In addition, Donald Trump has promised to impose 25 percent tariffs on imports of cars and other goods from the European Union. This could be considered the beginning of a new trade war, writes Reuters. Why Trump Needed to Introduce Tariffs Was Investigated Radio Liberty.

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U.S. President Donald Trump's new 25 percent tariffs on imports from Mexico and Canada took effect March 4, along with new levies on Chinese goods, sparking trade wars that could hurt economic growth and raise prices for Americans still reeling from years of high inflation.

The measures, which could upend nearly $2,2 trillion in annual trade, come after Trump said the US's three largest trading partners had not done enough to stop the flow of fentanyl and its precursors into the US.

On the subject: Canada has figured out how to respond to Trump's tariffs: America faces a trade war

In his address to Congress, Trump said new tariffs would follow on April 2, including "reciprocal tariffs" and non-tariff measures aimed at evening out decades-long trade imbalances.

“Other countries have used tariffs against us for decades, and now it’s our turn,” Trump said, referring to high levies on American goods by India, South Korea, the European Union, China and other countries.

China's Foreign Ministry responded defiantly: "If war is what the US wants, whether it is a tariff war, a trade war or any other war, we are ready to fight to the end."

Commerce Secretary Howard Lutnick told reporters that U.S. officials had been in talks with Mexico and Canada "all day" and could reach a partial resolution with the two neighbors, saying they needed to do more to combat fentanyl.

"I think there will be some movement. It won't eliminate the tariffs, but it might soften them a little bit," he said, referring to the decision expected on March 4.

Latnick added that Trump is considering providing waivers to companies that comply with rules under the U.S.-Mexico-Canada trade agreement, which is up for review in 2026.

Retaliatory measures

Canadian Prime Minister Justin Trudeau called the tariffs "a very stupid idea" and responded with 25 percent duties on C$30 billion ($20,7 billion) worth of U.S. goods, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles.

Mexican President Claudia Sheinbaum promised retaliatory measures, but gave no details. She said she would announce Mexico's response on March 9.

Latnik's comments on the talks lifted the Canadian dollar and Mexican peso, but Trump's tariffs triggered a global sell-off in stocks.

China responded immediately, announcing additional tariffs of 10-15% on certain U.S. imports from March 10 and a series of new export restrictions on designated U.S. companies. China later filed a complaint against the U.S. tariffs with the World Trade Organization.

Trudeau said Canada would impose tariffs on an additional C$125 billion on American goods (likely including cars, steel, aircraft, beef and pork) if Trump's taxes remain in place for 21 days. Canada would also challenge the U.S. tariffs under WTO rules and the U.S.-Mexico-Canada Free Trade Agreement.

"They have decided to start a trade war that will hurt American families first and foremost," the Canadian prime minister said of the Trump administration.

Trudeau believes that the White House wants to weaken the Canadian economy to such an extent that Ottawa will consider annexing the United States.

Ontario Premier Doug Ford has canceled a C$100 million contract with Elon Musk's Starlink network, banned American companies from bidding on provincial government contracts and said that if Trump's tariffs remain in place, he will impose a 25 percent surcharge on Ontario's electricity exports to the United States.

"Please explain to Governor Trudeau of Canada that when he imposes retaliatory tariffs on U.S. goods, our mutual tariffs will immediately increase by the same amount!" Trump wrote in a post on his private social media platform.

Price increase

The tariffs have already driven up prices in the US, running counter to Trump's campaign promise to lower the cost of living for Americans.

Target CEO Brian Cornell told CNBC that the retail giant will raise prices "in the next few days" on some seasonal food items, such as avocados from Mexico.

Electronics retailer Best Buy also warned of possible price increases, with CEO Corey Barry telling analysts that China remains the company's top source of goods, with Mexico coming in second.

The 20 percent tariff on Chinese imports will apply to several key categories of Chinese electronics that were not affected by previous levies, including smartphones, laptops, gaming consoles, smartwatches, speakers and Bluetooth devices.

"We estimate that tariffs could add nearly $1000 per household to the cost of goods each year," said Katie Bostianczyk, chief economist at Nationwide Mutual. "The stronger dollar helps cushion some of the inflationary impact that would otherwise be larger."

Duties on Chinese goods

An additional 10 percent tariff on Chinese goods went into effect on Tuesday, March 4, adding to the 10 percent tariff Trump imposed on February 4 and on top of tariffs of up to 25 percent imposed on Chinese imports during Trump's first term.

Tariffs on some of these goods rose sharply under 46th President Joe Biden last year.

China's retaliatory tariffs targeted a wide range of American agricultural products, including certain meats, grains, cotton, fruits, vegetables and dairy products.

American farmers were hit hard by the trade wars of Trump's first term, which cost them an estimated $27 billion in lost export sales and ceded their share of the Chinese market to Brazil.

Tariffs on Mexican and Canadian goods could have serious consequences for the highly integrated North American economy and halt years of strong U.S. economic growth.

The Atlanta Federal Reserve Bank's GDPNow model showed a striking shift to a 2,8% contraction in U.S. GDP in the first quarter from a projected 2,3% gain last week.

What are Trump's expectations?

This isn't just a diplomatic game. Trump is genuinely trying to solve at least two serious problems with the American economy.

According to the results of 2024, the United States imported goods worth approximately $4,1 trillion. The trade deficit approached a trillion. Moreover, if you do not take into account services, in which Americans are in the black, the deficit in trade in goods reached $1,2 trillion. So far, this is an absolute record, but the deficit has been chronic over the past decades.

Another problem is that the government spends more than it takes in. Last fiscal year, the deficit exceeded $1,8 trillion.

According to the current administration, import duties will force companies that supply their goods to the United States to either fork out more, or reduce supplies, or do both. Even 10% of $4 trillion in imports is already $400 billion for the American budget, 25% is a trillion. Part of this money can be used to reduce the deficit, and part - to reduce the tax burden on American companies. They will actively engage in the process of import substitution and rush to satisfy the demand that will arise due to the reduction in imports.

What is the reality?

In practice, problems may arise that can jeopardize the entire plan. Moreover, some of these problems are clearly demonstrated by the Russian experience of building a "sovereign economy" and import substitution. An attempt to import substitute everything possible runs into so-called natural limitations - a lack of free industrial capacity, infrastructure, and workers. The breakdown of traditional economic ties, or, as they are now called, "supply chains", often leads to the opposite effects - a forced reduction in production and a search for alternative suppliers. And you have to buy more expensively, and with a loss of quality.

The expectation that foreign suppliers will have to fork out money for the US budget may also have side effects. At least some of the additional costs will fall on the shoulders of buyers due to higher prices. The US economy may very quickly become overheated (like the Russian economy was a year or two ago). Relatively high growth rates will be accompanied by high inflation.

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From the global market to regional trade unions

Then we can look at the last three Russian years. Now the Russian economy is almost further from self-sufficiency than before the full-scale invasion of Ukraine. At least Russia's trade balance has fallen to the values ​​observed at the height of the crisis during the COVID-19 pandemic.

The difference between the American and Russian economies is that the world is more or less able to survive Russian shocks. But American tectonic shifts can result in a tsunami that will roll across the world. The difference between the US and Russia is not only in the size of the economy. The Americans have been able to finance their trade and budget deficits for decades thanks to the policy of a strong dollar and the unique status of the American currency in world trade and finance. Measures aimed at protecting the American market from imports (as well as countermeasures that will be taken by Chinese, European, Canadian, and Japanese authorities) will significantly accelerate the process of deglobalization that has already begun.

The "global market" - a cliche to which everyone has long been accustomed - has already begun to be replaced by regional trade unions and associations. In these conditions, the need for a global currency may also decrease significantly.

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