The Return of the Trump Tariffs - Navigating the challenges of Trump's return to the White House and his next strike on global trade 

President-elect Trump will return to the White House in less than two weeks, on 20 January 2025. He has already announced far-reaching policy changes, particularly in the area of international trade. He plans to impose a wide range of cross-sector tariffs with a particular focus on Chinese goods, but also targeting global imports with "universal tariffs". This will put further pressure on globally operating business actors that are already dealing with U.S. tariffs, largely maintained under the Biden administration, coupled with a worldwide trend of protectionist trade measures.

The next "episode" of the Trump Tariffs saga is likely to affect various businesses, with some critical sectors such as steel, aluminium and automotive facing particular challenges. In general, the trade agenda pursued by Donald Trump will represent another step back from the principles of barrierless, cooperative and predictable global trade. Globally operating businesses will need to prepare for further cost increases and supply chain disruptions.

Key takeaways

• President-elect Trump's threats to impose tariff hikes should be taken seriously. He is likely to face little (legal) obstacles to impose far-reaching tariffs with significant impacts on global markets.
• The planned tariff agenda will have significant implications for the majority of globally operating businesses, with particular impact on those in the automotive, pharmaceuticals, steel and aluminium sectors.
• The introduction of the proposed tariff increases is likely to result in significant disruptions to global trade, creating a volatile environment for the private sector.
• Businesses should prepare to reassess their risk exposure to the planned tariff agenda. In general, businesses operating on a global scale, particularly those that rely heavily on imported materials or on the United States as a major sales market, will need to keep a close eye on developments over the coming weeks and months in order to address the potential impact on their market access conditions and to identify any possible supply chain disruptions.

What measures are planned and who will likely be most affected?

Donald Trump's tariff agenda during his second term will most likely build on the measures implemented during his first term and, to a large extent, maintained under the Biden administration.

Recap: Trump Tariffs Episode I

During Donald Trump's first term tariffs have already been a central element of his trade policy. The introduction of tariffs was presented as a retaliation measure against unfair trade tactics and a way to boost the domestic economy and to reduce the U.S. trade deficit. Also, President Trump saw tariffs as a viable method of exerting pressure on competitors or influencing the policies of other countries.

To achieve this aim, the Trump administration has imposed a series of tariffs on imports of solar panels, washing machines (30-50%), steel (25%) and aluminium (10%) from various countries (including the EU), as well as on most goods from China (affecting more than USD 380 billion worth of trade at the time) (for an official overview see: Report of the Congressional Research Service). The Biden administration has maintained most of the measures against China but has lifted or eased certain tariffs on imports from other countries. For example, it replaced tariffs on steel and aluminium with tariff-rate quotas on imports from the EU, the UK and Japan. With regards to China, however, the Biden administration even imposed additional tariffs on Chinese goods, especially for electric vehicles ("EVs") (100%), batteries (25%) and semiconductors (50%) (see: The White House Fact Sheet).

In summary, while the situation has eased for some regions and sectors under the Biden administration, operators with global businesses and supply chains are still experiencing adverse effects, especially due to the existing high U.S. tariffs on Chinese imports. The situation could deteriorate further with an escalation under a second Trump administration.

What measures are to be expected from Trump Tariffs Episode II?

During his campaign, Donald Trump announced that it would swiftly impose a wide range of cross-sector tariffs, including:

• Universal tariffs (10%) on imports from all countries
• Retaliatory tariffs; i.e. “Relief from Unfair Trade Practices" (up to 60% on Chinese imports)
• Reciprocal tariffs (based on the tariff rate difference between the United States and its counterpart)
• Specific sectors tariffs (especially vehicles; concrete threats were directed at the Mexican automotive industry)
• Specifically targeted countries (e.g. 25% on all imports from Canada and Mexico or 100% on BRICS countries)

It remains unclear to which extent these threats will actually be implemented and how much will be used as a negotiating tactic. However, as President-elect Trump, who has tellingly described himself as the "tariff man" takes office, there is no reason to believe that he will back down on most of his plans. The tariff agenda was a central element of his election campaign and is regarded as a crucial factor in achieving victory in the swing states. It is therefore to be anticipated that tariffs will remain a pivotal policy to pursue U.S. economic interests and put pressure on competitors.

In this light, harsh tariff hikes are particularly likely against China, which the previous Trump administration's National Security Strategy identified as a "strategic competitor". The severity of the tariffs will be contingent on various factors, including the influence of advisors. For instance, Elon Musk, who is anticipated to play a pivotal role in Trump's cabinet and exert influence on the president's broader political strategy, could be significantly impacted by high tariffs on Chinese goods, due to his deep business ties with China, especially with respect to Tesla.

However, given the United States being one of its largest export market, also the EU and the UK, as traditional "allies" of the United States, will have to prepare for higher tariffs and trade restrictions, as former Trump administration official, Kelly Ann Shaw only recently warned.

This does not mean that the new Trump administration will not also use tariff threats as a means of economic coercion. Rather, in addition to implementing tariffs in order to boost the domestic economy, the Trump administration is also likely to leverage the threat of high tariffs as a bargaining tool to pressure competitors into negotiations on existing or new free trade agreements with more favourable market access terms for the United States. This has already been done during his first term, for example with regard to the United States–Mexico–Canada Agreement ("USMCA"). Furthermore, Trump is likely to not only use tariffs as a means of exerting pressure to secure greater market access, but also employ them as a coercive tactic on a broader range of political issues. Concerning the threat of imposing tariffs of 25% on all goods from Mexico and Canada, Trump has already announced that these measures will be specifically targeted at stopping "illegal migration and drug trafficking". Similarly, in relation to the threats to the BRICS countries, Trump has indicated his intention to implement tariffs if they weaken the dollar, by creating an alternative currency to the dollar for international trade. In relation to the EU, Trump has only recently linked the imposition of tariffs to a demand that the EU commit to the purchase of "large scale" amounts of oil and gas.

Which sectors will be affected the most?

President-elect Trump's far-reaching tariff-agenda, if implemented, will have a significant impact on almost all globally operating business sectors. However, some sectors are particularly vulnerable to increasing costs due to the threatened tariff hikes.

• Automotive: Donald Trump's proposed tariffs (whether universal or car-specific) are expected to cause significant impact on the automotive industry, particularly given the United States' status as the major market for imported passenger vehicles (with an import value of USD 203.6 billion in 2023). The potential decline in U.S. demand due to rising prices is expected to put even more pressure on the automotive sector which is already under financial stress from developing EVs and competition from Chinese manufacturers. German and Mexican car exports to the United States are predicted to be particularly affected, as the United States is their largest import market. In the event Trump follows through on his threat of imposing significantly increased tariffs on Mexican car imports, this will also have knock-on effects on other major car brands with substantial manufacturing operations in Mexico. In general, disruptions in supply chains and investment plans are being expected, potentially leading companies to increase U.S. production or pass costs to consumers.
• Electric Vehicles: EVs exported from the EU may face additional hurdles to those faced by the wider automotive sector. The Trump administration could revoke the relief for EU exports under the U.S. Inflation Reduction Act ("IRA"), making it harder for European EVs to qualify for support measures, as a significant segment of the vehicles would not be eligible under the original IRA rules.
• Pharmaceutical Products: Pharmaceuticals are on second rank of the most imported good by the U.S. (with an import value of USD 203.2 billion in 2023). The immediate impact of new U.S. tariffs on the pharmaceutical industry is likely to be minimal due to its critical nature and inelastic demand. However, over time, these tariffs and more favourable U.S. regulations could shift investment and production to the United States, especially for highly exporting countries and regions in that sector, such as the EU and UK.
• Steel, Aluminium and other Chemicals: Although smaller in total numbers, the steel and aluminium industry is also expected to be affected by the tariff agenda. Under the Biden administration, the EU and the United States reached an agreement to lift most restrictions on aluminium and steel and replace it with tariff-rate quotas; the new Trump administration could revoke these reliefs. Furthermore, the expected tariff hikes against China, the world's largest producer of steel, are feared to result in a surge of Chinese steel products in other markets. This could result in protective measures being taken by affected markets, which would in turn cause supply chain disruptions and increase costs for those business operators who rely on Chinese steel products. Exporters of chemicals will also be affected. For example, within the EU, the United States is the major market for chemicals (with an import value of EUR 139 billion in 2023).
• Fishery: In some regions, particularly the U.K., the fishing industry is predicted to be harshly affected, given that a high share of UK exports of fish products goes to the U.S. Studies fear an export volume decline by 22% in this sector.
• Electronics/ Semiconductors: The U.S. is also a major market for electronics and semiconductors. The import value of electrical equipment (including computers) and semiconductors made up 257.9 billion USD in 2023. Furthermore, President Trump has threatened to introduce tariffs on large chip manufacturing countries, which means Taiwan, with the Taiwan Semiconductor Manufacturing Company ("TSMC") producing 90% of the global most advanced chips. This would represent a shift from the approach of the CHIPS Act, which was implemented under the Biden administration in August 2022. The CHIPS Act was designed to support the U.S. semiconductor manufacturing industry, primarily through subsidies. An introduction of increased tariffs would lead to a rise of chip prices across the global supply chains and possible disruptions due to its general tangled multinational, multi-layered nature.

What are the relevant legal frameworks and implications?

The return of the Trump Tariffs has the potential to have far-reaching implications to various business sectors and global trade in general. This raises questions about the legal framework for imposing such measures and whether the Donald Trump could face legal challenges in the process and, as a result, for their implementation.

The U.S. legal framework

The legal basis for imposing import tariffs in the United States primarily derives from the U.S. Constitution (Article I, Section 8), which grants Congress the power to levy taxes, duties, and imposts. However, Congress has delegated significant tariff authority to the President through various trade laws over time. This delegation allows the President (without the participation of Congress) to impose significant tariffs under certain conditions, particularly related to national security, trade imbalances, or unfair trade practices. While President-elect Trump will have the majority in Congress to potentially obtain sufficient support for further legislative action, these far-reaching powers still remain relevant. Getting new legislation through Congress is a lengthy process, and it may be subject to legal challenges. In order to provide quick results, as announced during his election campaign, it is therefore probable that Trump will utilise the existing legislation to its fullest extent. By doing so, he will not only have the authority to implement tariff measures, despite potential reservations expressed by some Republican Representatives, but will also be able to do so following the mid-term elections, which could result in a change of majority in Congress. It is therefore beneficial to consider the existing legislation and carefully assess the opportunities that its material scope may present for a second Trump administration.

Key U.S. trade laws that grant tariff powers to the President include:

• Trade Expansion Act of 1962 (Section 232): Permits the President to adjust tariffs on products that are imported in such quantities or under such circumstances as to threaten national security, as determined by the Department of Commerce.
• Trade Act of 1974 (Section 301): Authorizes the President to impose tariffs or trade restrictions if it is determined that foreign countries violate trade agreements or engage in discriminatory practices.
• Tariff Act of 1930 (Section 338): Grants the President the authority to impose tariffs in response to discrimination against U.S. products.
• International Emergency Economic Powers Act ("IEEPA") of 1977: Grants the President broad powers to regulate imports if a national emergency is declared, typically linked to national security concerns.

During the first Trump administration, tariffs were implemented under various of these laws, including Section 232 of the Trade Expansion Act of 1962 and Section 301 if the Trade Act of 1974 for tariffs on steel and aluminium, and various Chinese products. Similarly, the Biden administration has continued using these laws to address trade imbalances and national security concerns. Regarding potential new tariffs, Trump could rely on a combination of these laws. While there is debate among U.S. law commentators as to the extent to which these laws could serve as a basis even for the implementation of universal tariffs, it seems not entirely impossible. Both laws require a prior investigation by competent authorities and a link to a national security threat, which seems a doubtful argument to apply to across-sector and region-unspecific imports into the United States. However, during Trump's first term, legal challenges to the Trump tariffs based on these sections did not result in victory. Rather, the U.S. courts have repeatedly applied a broad interpretation of these rules, allowing the President significant leeway (see, e.g., USP Holdings, Inc. v. United States).

The oldest piece of legislation, Section 338 of the Tariff Act of 1930, has not been used for over 70 years. However, as suggested by some advisers of President-elect Trump, it might be revitalised as it does not require any lengthy investigations beforehand, which would allow for the desired swift outcomes. The legislation allows for the implementation of tariffs in response to discrimination against U.S. products, which aligns with the broader narrative of Donald Trump that "all trade is unfair" with respect to U.S. products. Furthermore, the legislation does not include many institutional checks and balances to prevent such a sweeping approach. President-elect Trump could potentially use this legal basis not only for tariffs on Chinese products but also for universal tariffs until the courts review these measures.

Another potentially attractive approach to achieve quick results would be to base tariff measures on the IEEPA. Under this legislation, the declaration of a national emergency would allow for broad, also cross-sector tariff increase. In 2019, Trump considered using the IEEPA to impose tariffs on Mexican goods as a means of deterring illegal migration. However, a deal was ultimately reached before that. While the current legislation has not been used by any of the presidents, its predecessor has been invoked by President Nixon in relation to the Trading with the Enemy Act in 1971 to impose import tariffs, which has been upheld by the U.S. Court of Customs and Patent Appeals. Although the declaration of a national emergency could result in legal challenges, the legislation remains an option to act quickly and to impose far-reaching measures.

Lastly, the most concrete proposal for future legislation was presented in the form of the "Reciprocal Trade Act". On the basis of that act, President-elect Trump aims to introduce "reciprocal tariffs", which means that he intends to increase tariffs on imported goods from other countries that apply higher tariffs on the same products imported from the U.S. to an equal level. However, Trump would need to bring this new piece of legislation through the Congress, with uncertain success. Its potential impact on key U.S. sectors, such as agriculture, could influence the stance of even some Republicans.

To sum up, from a U.S. legal standpoint, while especially the implementation of universal tariffs may potentially give rise to legal challenges, overall, Donald Trump is likely to encounter minimal legal obstacles on the path towards reintroducing even far-reaching tariffs, given the extent of authority to act unilaterally granted to the U.S. President under the relevant legislation. The main challenge would be political opposition, both domestically and internationally, especially with regards to reactions following potential breaches of international laws.

Conformity of the measures under international law and potential reactions / counter-measures

The international trade law framework is based on three fundamental principles: freer and fair trade, predictability and non-discrimination. This means that the members of the World Trade Organization (WTO) work together on lowering trade barriers through binding and transparent means. Tariffs are therefore set to binding, maximum levels for individual members achieved through negotiations on mutual concessions for each product. The resulting legally binding commitments on cut and bound tariffs are enshrined in the goods schedules of individual members that are part of the Uruguay Round Agreements. In this process, tariff or trade concessions granted to one member must be extended to all (principle of "most favoured nation ("MFN") treatment"). Tariff increases are only allowed in narrow exceptions, such as to counteract dumping, illicit subsidy measures or import surges that threaten domestic industries (so-called safeguard measures) or "essential security interests". Furthermore, changes to tariffs can be negotiated on the basis of Art. XXVIII GATT. In such negotiations, Members concerned "shall endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade" than that provided for prior to such negotiations. Such negotiations have to follow a strict procedure foreseen in the provision, bringing together various negotiating parties, including Members "with whom the concession was originally negotiated" and Members that have a "principal" or a "substantial" supplying interest on the concession. Renegotiations involving multiple tariff lines and numerous trading partners require significant time to complete. During this period, the initiating member cannot unilaterally increase its tariffs. The member must wait until the conclusion of the negotiations, which will result in either an agreement or a disagreement among the parties on the new tariffs. If an agreement is reached, the initiating member can then notify and apply its new MFN tariffs. If no agreement is reached, the initiating member is still permitted to increase its MFN tariffs as desired. However, affected WTO members would then have the right to retaliate by withdrawing substantially equivalent concessions within a six-month window.

All of these principles are threatened by the announced tariff plans of the new Trump administration and the requirements of exceptions or tariff renegotiation procedures are unlikely to be met.

The United States, through multilateral trade agreements, governed by the WTO and 14 bilateral or regional Free Trade Agreements (FTAs), has committed to cut down trade barriers and ensure a predictable trade environment by maintaining tariffs within certain "bound" levels.

During Trump's first term, various affected WTO members have protested against President Trump's tariff agenda for unilaterally raising tariffs over the agreed bound levels and challenged the measures in front of the WTO dispute settlement body ("DSB"). While the former U.S. administration argued that the tariffs were a just response to unfair trade and a protection measure for domestic industry, this was mostly rejected by decisions of the DSB. Regarding the tariffs on aluminium and steel, the panels found that the U.S. tariffs violated core principles of WTO law and rejected the invocation of the "national security" exception, see, e.g., Report of the Panel, WT/DS544/R, US — Steel and Aluminium Products (China) (report under appeal). Generally, the excessive scope and unlimited application of the tariffs imposed under the first Trump administration was mostly found to conflict with core principles of international trade rules and stood little chance of being justifiable under narrow exceptions available under WTO law.

This assessment is likely to also apply to the even more extensive tariffs, such as the threat of "universal tariffs" against all imports into the United States that the new Trump administration plans to implement. In light of the substantial and timely procedural requirements, as well as the absence of immediate unilateral outcomes, it is highly improbable that Trump will initiate a tariff renegotiation under Art. XXVIII GATT.

In the absence of formal negotiation procedures, also proposals like the introduction of reciprocal tariffs are unlikely to be compatible with WTO law. Different countries have different economic needs and policy priorities as reflected in their different tariff concessions enshrined in relevant goods schedules. This means trade negotiations under the WTO/GATT are based on the principle of first-difference (marginal) reciprocity, i.e. countries trade off increased access to their own markets through tariff cuts in exchange for access to export markets, depending on market value and policy interest. By the way of example, in 2020 the EU reduced tariffs on live and frozen lobsters products at the request of the United States while in turn, the United States reduced its tariffs on a group of products of equivalent value and of interest to the EU (e.g. glassware and ceramics). These concessions were then applied to all WTO members in accordance with the MFN-principle. Raising tariffs on any imported good from a third country to the same level as foreign countries assign tariffs to that specific product would disregard this concept as well as the MFN-principle.

Possible reactions and effects on global markets

In light of the potential violations of WTO law and the rules set out in FTAs, it is likely that affected states will take action in response to the expected second round of Trump Tariffs.

One potential course of action would be to challenge the measures before the DSB. However, given that the WTO dispute settlement mechanism currently lacks a functioning Appellate Body due to the U.S. blockade of reappointing judges, and considering that the United States is not a party to the Multi-Party Interim Arbitration Arrangement ("MPIA"), this approach may not be highly effective. As demonstrated by the legal challenges encountered during the previous term, the adoption of dispute settlement reports that are unfavourable to the United States can simply be circumvented through initiating an appeal process.

Affected countries might therefore resort to unilateral retaliatory measures. For instance, when Trump imposed tariffs on EU steel and aluminium in 2018, the EU responded with its own tariffs, so did Canada, Mexico, Turkey, India, and Russia. China, as one of the most affected countries, also responded with massive retaliatory tariffs, eventually escalating into a trade war.

Without the moderating effect of a fully functioning WTO dispute settlement mechanism, the new tariff threats could lead to a wave of unilateral retaliatory measures from countries worldwide that could result in a full-scale global trade war. Furthermore, major import markets such as the EU may face pressure due to trade diversion. Products previously exported from other countries to the United States could now seek new markets, potentially leading to increased strain on affected domestic industries and the possibility of related protection measures. This effect was already observed during the previous Trump administration. For instance, the EU introduced protective measures against steel and aluminium imports from other countries in response to the last Trump tariffs.

Such an outcome would have a significantly detrimental impact on the overall stability of global markets. At the macroeconomic level, experts anticipate a decline in GDP across all affected countries and regions. A recent study by the London School of Economics indicates that tariffs proposed by President-elect Trump could reduce U.S. GDP by 0.64%, China's by 0.68%, and the UK's by 0.14%, while the EU would face a more modest reduction of 0.11%, with Germany being the most affected with a GDP loss of 0.23% (see: Saussay A, 2024). Retaliation measures would worsen the situation even more, experts say. For example, if China retaliates with an increase of its average tariff on US imports by 40 percentage points, the world GDP could drop by 0.56% in 2025, reaching a loss of 1.08% by 2028 (Obst; Matthes; Sultan, 2024).

Overall, this environment would lead to a significant increase of costs for manufacturing businesses along their supply chains and reduced investments due to an uncertain market environment, generally cutting the benefits derived from international trade.

In less of a doom-day scenario, affected countries and regions could also couple up in bilateral/ plurilateral trade agreements to circumvent the Trump Tariffs and reduce to overall negative impact on global economy. This approach is also recommended by the majority of economic analysts and observers (see, e.g., Obst; Matthes; Sultan, 2024; Saussay A, 2024). Furthermore, as the European Central Bank president, Christine Lagarde, has recently advised for the EU, the approach to a reaction to the tariffs threats should be "not to retaliate, but to negotiate. Regarding the EU, this could for instance take the form of offering to buy more U.S. oil and gas, in an effort to ban remaining Russian gas imports or import U.S. military products to further support Ukraine's defence against the Russian aggression.

Nevertheless, private business operators will need to prepare for any of these scenarios.

How to prepare and how we can help

The new order of global trade will force companies to reassess their risk-exposure to the effects of the planned tariff agenda. The escalating tensions with China will most likely result in a major disruption of supply chains for business operators relying on the import of Chinese products or having manufacturing branches in China. This could not only drive companies to relocate in order to reduce costs but put on risk new investments with Chinese companies. Generally, globally operating businesses, especially when relying strongly on foreign-sourced materials/ equipment, will have to closely monitor the development of the next months and the potential retaliatory actions. Furthermore, it is probable that the introduction of new tariffs will prompt some countries to renegotiate existing free trade agreements or implement new ones. It will be crucial for business operators to be at the forefront of the developments in order to assess the challenges and benefits potentially arising from new rules that may affect their business sectors.

Our international & EU trade and regulatory practice at Ashurst stands ready to support companies navigating these challenges. We are highly experienced across the full spectrum of international trade law issues including WTO law, free trade agreements, trade policy, trade defence, customs and market access, sanctions and export controls as well as regulatory affairs. Furthermore, our team provides clients with in-depth understanding of the latest legislative and regulatory developments to ensure they stay abreast of policy trends and is therefore best equipped to support clients with any issues arising from the next episode of the Trump Tariffs.

Important announcement:

Don't miss out on our dedicated webinar on 28 January 2025

Join Ashurst's Head of International Trade Claus Zimmermann and his expert panel for the next edition of the Ashurst Trade Pulse webinar series, providing an in-depth analysis of Trump’s plans for U.S. trade policy and tariffs and dissect the far-reaching impacts on global trade and the economic landscape.

Covered topics:

• The Return of the Trump Tariffs: What measures is Trump likely to implement, and what is the expected timeline?
• Potential Reactions: What international responses will Trump’s trade agenda provoke, and what impacts might they have?
• Targeted Sectors: Which industries could be impacted most?
• Global Supply Chain Shakeups: How to navigate potential disruptions.

We encourage you to send in your questions ahead of time, so that we can address them live during the webinar.

When: Tuesday, 28 January 2025, 10 a.m. CET

Click here to register.