The New US Tariffs

US President Donald Trump announced sweeping tariffs on imported goods on April 2. He unveiled them at an event, “Make America Wealthy Again”, which key cabinet members and steel and auto sector union members attended. Shortly afterwards, the White House released several documents—two executive orders, a fact sheet, and articles—detailing the administration’s policy, rationale, and legal justification for the move.

These tariffs affect every country. Some build on existing tariffs, while others replace them. The measures raise many questions: Who is affected? How were the rates determined? What does this mean for businesses, consumers, and global trade? This explainer, part of the work of GMF’s Allied Strategic Competitiveness team, attempts to answer these and other related questions.

What are the new US tariffs?

President Trump announced several tariffs on April 2:

• A 10% baseline tariff on all imported goods, covering nearly every product entering the United States. This rate also applies to countries with which the United States has a trade surplus.
• Custom higher “reciprocal” tariffs on goods from countries and regions with trade deficits or policies that the United States considers anti-competitive.
• The revocation of the de minimis rule, which allows shipments under $800 to enter the United States duty-free, for goods from China and Hong Kong.
• A 25% tariff on cars, trucks, and some auto parts.

In addition, President Trump reminded listeners of previously announced tariffs:

• A 20% tariff on most Chinese goods, which came into effect on March 4.
• A reimposition of 25% steel and aluminum tariffs, previously announced on March 12.
• A preview of upcoming actions on pharmaceutical, semiconductors, lumber, and copper. 

The changes indicate that the United States has abandoned the “most-favored-nation” (MFN) principle under the World Trade Organization (WTO), according to which any trade advantage granted by one WTO member to another must be extended to all members, unless the advantage was negotiated as part of a trade agreement. While WTO members can apply different rates to products, they must charge all members the same rate for the same product.

When do the new tariffs go into effect?

• The 25% tariff on automobiles went into effect on April 3.
• 10% baseline tariffs began on April 5.
• Higher reciprocal tariff rates will go into effect for 57 countries on April 9.
• The de minimis rule will no longer apply to Chinese goods from May 2.
   

What are the Trump’s administration’s policy goals with these tariffs?

The White House has offered several reasons for imposing new tariffs: 

• reduce and rebalance the US trade deficit
• raise revenue
• create jobs, reshore manufacturing, and promote US innovation
• reduce critical dependencies and supply-chain vulnerabilities, especially in the defence sector
• pursue other policy objectives, such as reducing illegal migration and combating a fentanyl crisis

The administration released a fact sheet outlining some of its reasoning, noting that “studies have repeatedly shown tariffs are an effective tool for achieving economic and strategic objectives.” Others argue that tariffs help to bring manufacturing and jobs back to the United States. While experts agree that tariffs are a powerful policy tool, they disagree on their costs and benefits. Most economists contend that companies are likely to pass on the increased cost of imported goods to consumers or stop imports all together, driving up prices. For example, in 2018, Trump imposed tariffs of 20% to 50% on washing machines imported from South Korea. As a result, prices surged by 34%, even though inflation was only 20%. Interestingly, the price of dryers also rose 34% during the same period, even though they were not subject to the tariffs. While the tariffs did lead to the creation of 1,700 to 2,000 new jobs in US washing machine manufacturing, the increased costs borne by consumers meant that the creation of each job cost roughly $815,000. The WTO has also warned that new US tariffs could contract global goods trade volumes by 1%.
 

How were the tariffs calculated?

Nations with a surplus or small deficit in goods with the United States face a standard 10% minimum tariff. Higher “reciprocal” tariff rates apply to 57 countries with larger trade deficits. These countries and their tariff rates are included in Annex 1 of the relevant executive order.

According to the White House, the “reciprocal” tariffs reflect the cumulative impact of:

• regular import tariffs imposed by foreign countries on US goods
• non-monetary trade barriers (e.g., wage depression, slow customs processes, unfair trademark regimes, standards and protections, and VAT systems)
• alleged “cheating” (e.g., currency manipulation and corruption)

The White House believes these trade practices are unfair and constitute an extraordinary threat to the US economy and national security.

The methodology behind the rates was published on April 2. The formula used was: 

country’s tariff rate = [a country’s trade deficit with the United States] / [price elasticity of import demand] x [elasticity of import prices with respect to tariffs] x [total exports to the United States]

Official 2024 US census data was used for total imports and exports. Price elasticity of import demand was set at 4, while elasticity of import prices with respect to tariffs was .25, for a total of 1. As a result, the formula can be simplified to:

country’s tariff rate = [a country’s trade deficit with the United States] / [total exports to the United States]

The tariff rates were then divided by 2, cutting the rates in half to get the final numbers listed in Annex I of the executive order.

The president can revise these tariffs upwards or downwards. How long they apply is also up to the president’s discretion.
 

Who pays what?

• Countries facing a 10% tariff on exported goods include the United Kingdom, Singapore, Brazil, Australia, New Zealand, Türkiye, Colombia, Argentina, El Salvador, the United Arab Emirates, and Saudi Arabia.
• Countries facing custom higher “reciprocal” tariffs have been referred to as the “worst offenders” and include, among others, China (an additional 34%), Vietnam (46%), Thailand (36%), Japan (24%), Cambodia (49%), South Africa (30%), Taiwan (32%), and the EU (20%).
• Some countries face neither baseline nor reciprocal tariffs due to existing sanctions. They are Belarus, Cuba, North Korea, and Russia. Tariffs also seem not to apply to Burkina Faso, Palau, the Seychelles, Somalia, and Vatican City.
• Canada and Mexico were also exempted from April 2 tariffs due to other existing trade actions.

One notable feature: The EU is treated as a single entity, even though there were rumors that the US government might impose country-specific rates. This benefits Germany, Ireland, and Italy (which have high goods surpluses with the United States) but penalizes the Netherlands and Spain (which run trade deficits with the United States).

Chinese imports will have a minimum tariff of 54% (applied on top of other existing tariffs on stell, aluminum, and/or autos and auto parts). For example, an auto part made from aluminum will face a 54% baseline tariff, on top of the 9% existing tariff and the recent 25% tariff on aluminum.

Mexico and Canada were excluded from the April 2 tariff list as both countries are covered by new tariffs in place since February.

• Goods covered by the United States-Mexico-Canada Agreement (USMCA), the free-trade pact among the three countries, will continue to see a 0% tariff.
• Non-USMCA compliant goods will see a 25% tariff.
• Non-USMCA compliant energy and potash will see a 10% tariff.

If the executive orders for Mexico or Canada on fentanyl are revoked, then non-USMCA compliant goods will be subject to 12% tariffs.

There are gaps and inconsistencies in the April 2 announcement. Some countries sanctioned by the United States, notably Syria and Iran, are subject to new tariff rates whereas Russia and Belarus are not.
 

What sectors and products are affected?

In principle, everything. However, exemptions are listed in Annex II of the April 2 executive order:

• goods covered under 50 USC 1702(b) (such as personal luggage items and humanitarian donations)
• steel, aluminum, autos, light trucks (including SUVs), and auto parts already subject to Section 232 tariffs
• copper; pharmaceuticals, semiconductors, and lumber, which are or soon will be under separate trade investigations and potentially subject to future tariffs
• bulk precious metals (e.g., gold and silver)
• energy resources and certain raw materials unavailable in the United States

Research shows that a tariff rate will fall as the number of exemptions increases. According to Global Trade Alert’s US Reciprocal Tariff Chart Book, Germany will face an average tariff rate of 18% (down from 20%), while Ireland will face a rate 3.8% (down from 20%) thanks to the exemption of pharmaceutical products.

Finally, if a good has at least 20% US originating content, then the tariff rates apply only to the good’s non-US content. For example, if a shirt is made in Vietnam from US originated fabric, and that fabric is more than 20% of the value of the finished shirt, the tariff on the shirt would be calculated as a percentage of the shirt price minus the value of the fabric.
 

What legal authority is being used to justify these tariffs?

The Trump administration is using the International Emergency Economic Powers Act (IEEPA), which allows the president to regulate imports during a declared national emergency under the National Emergencies Act.

Previous administrations normally used IEEPA to justify most of their primary and secondary sanctions, thereby preventing, for example, companies from doing business in Iran or Syria. The administration also used IEEPA to impose tariffs on China, Canada, and Mexico earlier this year due to an influx of fentanyl. However, this was the first time IEEPA has been used to justify the use of tariffs in this way, and legal scholars argue that tariffs should be implemented under trade laws requiring congressional or WTO oversight.

Legal bases used:

• International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.)
• National Emergencies Act (50 U.S.C. 1601 et seq.)
• Section 604 of the Trade Act of 1974, as amended (19 U.S.C. 2483)
• Section 301 of the Trade Act of 1974
• Section 232 of the Trade Act of 1962

Could these tariffs face legal challenges?

The Trump administration has justified tariffs by saying that unfair “foreign trade and economic practices have created a national emergency” and that “responsive tariffs” were necessary to “strengthen the international economic position of the United States and protect American workers”. However, some US legal scholars believe that using IEEPA to justify tariffs is illegal. 

The US Treasury, Justice, and State departments are responsible for implementing acts adopted based on IEEPA, though the reversal of the Chevron principle in 2024 limits agencies' power of interpretation. This could make it harder for the administration to defend these tariffs in court.

On April 3, a small company, Emily Ley Paper, filed a lawsuit in a court in northern Florida (Emily Ley Paper Inc. v Trump (N.D. Fla., 3:25-cv-00464)) on the February 1 executive order citing Chinese fentanyl as the reason for invoking IEEPA to impose tariffs. Should the court rule that using the act for collecting tariffs is illegal, only companies that were a party to the lawsuit would be able to recoup duties paid. 

Another lawsuit (HMTX Industries LLC v United States) was filed around the use of Section 301 tariffs against China during Trump’s first term. HMTX lost in the Court of International Trade, and the case has been appealed. However, courts have been deferential to executive action on national security grounds and have ruled overwhelming for the US government.

What other roadblocks could the US government face?

The Constitution states in Article 1, Section 8 that “The Congress shall have the Power to lay and collect Taxes, Duties, Imposts, and Excises.” Over time, however, Congress has ceded that authority to the president.

Congress may reassert its rights to regulate international trade, and several bills have been introduced to provide oversight of the president’s trade actions. While immediate action is unlikely in the Republican-led House of Representatives and Senate, Congress could be prompted to act if the economic situation materially deteriorates.

Implementation of these expansive tariffs also faces practical hurdles. The scale of the changes, combined with limited staffing and coordination among government departments, suggests enforcement may be slow, inconsistent, and vulnerable to legal and logistical confusion. Clear explanations of the technical details of the new order are still being prepared, creating challenges for importers.

According to a White House release on April 3, tariff collection and enforcement will be overseen by a newly established agency, the External Revenue Service. While announced in concept, the details of this new service have not yet been made public.

Finally, the tariffs will force companies to reevaluate their investments, supply chains, and customer relationships. Onshoring to serve the US market is one option, as is changing suppliers and reconfiguring supply chains.

How is Europe responding?

The reaction has been mixed.

The EU is preparing countermeasures, bundling potential measures targeting US steel and aluminum with new actions to respond to the April 2 reciprocal tariffs. European Commission President Ursula von der Leyen has said that the EU would be ready to introduce further retaliatory measures, if necessary, but negotiation is their preferred option. European leaders will also pursue further dialogue with Washington. The response of EU capitals has varied. French President Emmanuel Macron has asked French firms to limit their investment in the United States.

The EU has several tools at its disposal. Its “bazooka” is the Anti-Coercion Instrument, which could temporarily block US exports to Europe, limit access to European procurement markets, and target US services exports. US tech giants do nearly 30% of their turnover in Europe, and the United States has a services surplus of over €100 billion. 

The EU is also conscious of how US tariffs impact its other trade partners and intend to cooperate with countries of “Global South”. This includes short-term efforts on specific commodities that the United States is targeting and forging alliances for the longer term. Brussels is also working on a plan to limit the redirection of Chinese goods from the United States to Europe.

The United Kingdom has said it would pursue dialogue, though it would not refrain from taking decisions that are in its national interest. The United Kingdom and the United States have previously announced plans to negotiate a trade deal that might reduce the British tariffs.

Switzerland said it would not immediately counter the 32% tariffs imposed by the United States and would engage in dialogue with Washington. Pharmaceuticals make up over half of Swiss exports to the United States and are exempt from the tariffs. But other Swiss industries, such as machinery, watches, chocolate, and cheese, are not. 

Norway has also said that it would engage in dialogue with Washington. It is lobbying EU policymakers to prevent any negative spillover from the bloc’s responses to US tariffs on Norwegian exports to the EU.

How are companies affected?

US importers are facing serious cash flow pressures. Under the new system, tariffs will need to be paid upfront when goods enter the country, but many importers may wait weeks or even months to receive payment from their customers. This mismatch is particularly worrying for sectors with tight margins or long payment cycles. Small importers are likely to be among the hardest hit, with some warning that the sudden strain on liquidity could drive them into bankruptcy.

E-commerce will also see major disruption. The de minimis rule, which allowed low-value goods (such as small online purchases), to enter the United States without formal customs procedures, has been revoked for China and Hong Kong. Now, every package from both valued above $250 will need to go through full customs clearance and be assessed for tariffs. Packages valued at $250 or less will go through informal clearance (less paperwork) and pay duties. This could significantly slow deliveries and increase costs for platforms such as Temu, Shein, and TikTok Shop.

For European companies, the impact of US tariffs will vary widely. The scale of disruption depends on each sector’s exposure to the US market, the likelihood of future sector-specific tariffs, and indirect effects on supply chains and trade within Europe itself.