Trump goes all out, and an epic trade war has begun! China, Canada, and Mexico have successively retaliated, and the U.S. is set to suffer.
On March 3, the Trump administration announced tariffs on its three major trading partners, China, Canada, and Mexico, under the pretext of 'fentanyl inflow.' A 25% tariff was imposed on goods from Canada and Mexico, while a 10% tariff was imposed on Chinese goods. This decision was like dropping a bomb, and in response to the U.S. provocation, China, Canada, and Mexico did not back down, unveiling countermeasures within 48 hours. An epic trade war has thus begun.
The Trump administration's move appears sudden, but in reality, it has long been foreseen. From blaming China for 'stealing American jobs' during the campaign to suddenly announcing steel and aluminum tariffs in March this year, his trade policy has always revolved around the core logic of 'America First.' Firstly, there is an urgent need to fill the fiscal gap. The U.S. national debt has exceeded $36 trillion, and interest payments for the fiscal year 2024 will reach $882 billion, accounting for 18% of federal revenue. The fiscal gap left by the Biden administration forced Trump to seek new sources of revenue, and imposing tariffs can generate income while being less likely to provoke domestic protests.
Secondly, there are political considerations related to fulfilling campaign promises. Trump's core voters are concerned about border security and the return of manufacturing, and by pressuring Canada and Mexico to strengthen border controls, he can both demonstrate a tough stance and accumulate leverage for subsequent negotiations with China. Data shows that in 2024, the total U.S. international trade deficit is $918.4 billion, and this long-term imbalance is seen by Trump's team as a major threat to economic security.
As the economic dividends from tax cuts gradually fade and the return of manufacturing falls short of expectations, using foreign toughness to shift domestic contradictions has become a political bargaining chip. Finally, there is the strategic intent to reshape the global supply chain. By imposing tariffs, companies are forced to move production lines back to the U.S., which can alleviate domestic employment pressures and weaken China's position in global manufacturing.
In this context, global markets quickly reacted. The first to be affected was the commodity market, where on February 3, New York crude oil prices surged by 3% in a single day, and copper prices fluctuated sharply, reflecting concerns about supply chain disruptions. Developing countries face more severe challenges, with India becoming a key target due to an average tariff of 17%, significantly impacting its pharmaceutical and textile exports. Even U.S. allies cannot escape the fallout, as Japan's automotive industry may lose billions of dollars in orders due to non-tariff barriers, and the EU faces a 25% tariff threat on U.S. automobile exports, causing stock prices of German and French automakers to drop.
The more far-reaching impact lies in the reconstruction of the international trade system. Data from the World Trade Organization shows that global trade volume declined by 2.3% within a week of the policy announcement. The International Monetary Fund estimates that if the trade war escalates fully, global economic growth will slow by 0.5 percentage points, equivalent to erasing an entire year's economic output of Australia.
In the face of U.S. tariffs, countries have adopted different counter-strategies. China's counterattack directly targets the U.S. economy's Achilles' heel, imposing a 15% tariff on chicken and wheat, and a 10% tariff on sorghum and soybeans, with the soybean measure alone affecting the livelihoods of 300,000 American farmers. Additionally, companies like U.S.-based Lidos have been added to the export control list, and for the first time, an anti-circumvention investigation has been initiated on imported optical fibers originating from the U.S., among a series of 12 waves of countermeasures. These measures precisely hit the pain points in the U.S. Canada’s counterattack is even sharper, imposing a 25% retaliatory tariff on U.S. imports. Mexican President López Obrador also stated that he would formally announce specific tariff and non-tariff countermeasures against the U.S. at noon on March 9.
The U.S. will pay a high price after facing countermeasures. From an economic perspective, U.S. corporate profits will decrease. Many American companies rely on exports, and the trade war has led to a decline in their sales in foreign markets, reducing revenue. Additionally, the cost of importing raw materials for U.S. companies will also increase, as many raw materials are imported from other countries and prices have risen due to tariffs. This will compress corporate profit margins, and some companies may even face the risk of bankruptcy. For example, automotive parts from the U.S., Canada, and Mexico typically require eight cross-border transports to complete assembly, and a 25% tariff has increased the cost per vehicle by nearly $10,000, forcing Detroit automakers to suspend five production lines.
The most direct impact comes from domestic livelihoods, and domestic consumers will also suffer. The trade war will lead to rising prices, forcing consumers to spend more money when shopping, increasing the cost of living. The price of Mexican avocados in Walmart has risen by 40%, restrictions on Canadian crude oil imports have caused gasoline prices in the U.S. to exceed $4 per gallon, and farmers in the Midwest have lost $2.3 billion in soybean orders due to Chinese tariffs.
At the same time, the U.S.'s international image has also been affected. America's unilateral provocation of a trade war undermines the global trading order, provoking discontent from other countries, and the U.S. will become more isolated internationally. Moreover, there will be differing voices within the U.S.; some businesses and consumers will oppose Trump's trade war policies, which will put pressure on his political standing.
In summary, the epic trade war instigated by Trump appears to be for the benefit of America, but in reality, it is self-defeating. Historical experience shows that there are no winners in a trade war; the 1930 Smoot-Hawley Tariff Act caused global trade to shrink by 66%, and now Trump's policies are repeating those mistakes. The U.S. imposing tariffs on its three major trading partners has triggered retaliatory measures from other countries, and the U.S. will pay a price in economic, political, and other aspects. Hopefully, the U.S. will soon realize the dangers of a trade war and return to the right track of resolving trade issues through negotiation and cooperation, so that the global economy can return to a path of healthy development.
As former U.S. Treasury Secretary Summers stated: 'Using tariffs to solve the trade deficit is like using a bucket to catch rainwater to fight flood—seemingly effective, but actually accelerating disaster.' In this no-win melee, the only certainty is that the global economic recovery process will be delayed again, and ordinary people will ultimately pay the price for political games.
