Since his swearing-in on 20 January 2025, President Donald Trump has been vocal and proactive in his policies to strengthen the US economy, security, and other sectors. Recently, Trump has been threatening major tariffs on Canada and Mexico, two of the US’s biggest trading partners, with China potentially being the third country to be taxed. Let’s explore how these could influence and even boost the US economy.
Origins Of (and Reactions to) Trump’s Tariff Threats
Trump first announced a 25% tariff on imported goods from Canada and Mexico and an additional 10% on goods from China on 1 February 2025. The announcement sparked debates among market watchers as markets reacted to the news. Over a month later, the stock market is still struggling as US stocks faced selling pressure on Wednesday, 5 March 2025, after Trump‘s speech reaffirming his commitment to new tariffs.
Traders and investors on online trading platforms also saw fluctuations in market data as currency prices responded to the news. The US dollar hit a four-month low, showing investors’ sentiments on potential economic challenges arising from the policy.
The tariff will tax goods from China, Canada, and Mexico once they reach US borders. Trump noted that it might cause “a little disturbance” and an “adjustment period,” which experts translate as preparations for market turbulence as the tariffs take off.
The tariff regime is related to the US border security discussions with Canada and Mexico. The US has pushed for more action to secure its borders from the inflow of illegal immigrants and hard drugs. US Commerce Secretary Howard Lutnick states that Canada and Mexico may avoid the tariffs if they enhance border security.
The tariffs also target protection for US local industries, especially manufacturing, which are falling behind due to increased imports. Trump also aims to reduce the trading deficit between the US and China through his tariff regime and improve revenue generation.
Investors are asking critical questions such as: Are the potential trade wars worth it? Will the tariffs boost the US economy in the long run? What impact would tariffs have on consumer goods and services?
Inflation and Consumer Prices
Tariffs on imported goods will raise prices for end consumers, who can expect the prices of clothing, groceries, and electronics to jump if the tariffs are implemented. This could lead to higher inflation and reduce consumers’ purchasing power.
The stock market reacted, as the S&P 500 fell 2.7% on Monday, while the Dow Jones Industrial Average fell 2%. Others, including Tesla, Nvidia, Meta, Alphabet, the Nasdaq share index, and Amazon, also recorded losses this week.
Business Costs and Supply Chains
The nature of manufacturing industries, such as the automotive industry, requires semi-finished products to cross borders several times before they are ready. Manufacturing parts also cross several borders to reach the industries where they are used.
Analysts fear that Trump’s tariffs might disrupt supply chains and increase costs for US companies that rely on imported materials. The extent to which such disruptions will impact the economy may depend on how local industries react and whether the government will provide support to cushion the effects.
Trade Retaliation and Impact on US Exporters
Canada is ready to impose a 25% surcharge on electricity exports to the US in response to Trump’s tariff. Ontario Premier Doug Ford made this known at a recent press conference, where he also noted that the surcharge would add about “$100 per month” to electricity bills in the US.
The US imports significant electricity from Canada, with about 1.5 million consumers in Michigan, Minnesota, and New York benefitting from the energy supply. Energy imports were $1.6 billion in 2023 and $1.7 billion in 2024.
Local industries and companies that rely on electricity imports may face increased production costs, which will eventually be passed on to final consumers. Ford’s threat to “shut off electricity completely” may pose more problems for the US.
GDP and Economic Growth
The impact of Trump’s tariffs on economic growth will vary in the coming months. Economists and analysts have raised concerns that the tariffs could push the US economy into recession. Financial markets may also experience extended periods of uncertainty and volatility, and fears of retaliatory tariffs may sway market sentiments.
Goldman Sachs recently revised its prediction for the US economy, updating the 2025 GDP forecast from 2.4% to 1.7% to reflect what they term a “considerably more adverse.” trade policy assumptions. Investors will monitor consumer price index (CPI) changes, interest rates, and other key economic indicators to frame the trajectory in the coming months.
Yet, there are glimpses of long-term economic benefits for the US. Slower GDP growth and ‘sticky’ inflation could pave the way for more rate cuts by the Federal Reserve and will benefit local businesses and consumers.
How Investors Can Trade During the Tariff Regime
Although market uncertainty worries investors, the situation may present opportunities to buy assets as selling pressure increases. For example, drops in stock prices open up buying opportunities for investors who prefer long-term returns.
Day traders and short-term investors can also short stocks, currencies, and other assets impacted by the ongoing tariff war, especially on CFD trading platforms.
It is also a good time for domestic industries in the US to pick up as prices gain. Analysts at Investopedia are calling the $30, $26, $43, and $49 prices as key levels for US Steel. Diversification is crucial to help investors maximize gains and reduce potential drawdowns as markets change.
To Round Up
Trump’s tariff and broader economic policies have drawn justified criticisms over the last few weeks. Whether or not the economy will receive a boost depends on how local industries adjust to the new regimes. As the global markets adjust to Trump’s policies, Brazil, India, Europe, and Asian nations may also be in line for tariff negotiations.
