Price: What another round on the tariff carousel means for US trade policy

On Feb. 1, President Trump issued executive orders imposing new tariffs on imports from China, Canada, and Mexico. In doing so, the president cited the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl” as a basis for the duties. Specifically, these orders applied a 10% duty to Chinese imports, a 25% duty to Canadian imports (except for energy products, which received a 10% tariff), and a 25% duty to Mexican imports. These tariffs were set to enter into force on Feb. 4.

Almost immediately, Canada announced a series of retaliatory measures, including 25% tariffs on a first tranche of US goods, which were set to apply on Feb. 4. This initial list of Canadian tariffs did not cover primary steel products but did include certain steel household appliances. Canada also announced a plan to impose additional tariffs after a 21-day comment period, which would potentially cover steel and aluminum products, as well as passenger vehicles and trucks and other products. Canada further contemplated non-tariff measures related to critical minerals, energy, and other goods. And individual Canadian provinces started declaring non-tariff retaliatory policies as well. Mexico also vowed to retaliate but did not announce formal measures.

By the morning of Feb. 3, the bluster of the weekend partially subsided, and the Trump administration reached an agreement with the Mexican government regarding increased border commitments that delayed the implementation of the tariffs on Mexico for one month. That afternoon, a similar agreement was reached with the Canadian government. By the end of the day, Trump issued new executive orders, which paused the previously issued Canadian and Mexican tariffs until March 4, but allowed the president to restore the duties immediately if Canada or Mexico were found not to abide by their commitments.

No similar agreement was reached with China. And, as of Feb. 4, new 10% import tariffs have been in effect on all Chinese imports. Notably, these duties are applied in addition to all other tariffs applied to Chinese goods, including Section 232 duties, Section 301 duties, antidumping and countervailing duties, and normal US customs duties.

On Feb. 3, US Customs and Border Protection (CBP) issued guidance on implementing the China tariffs. This guidance confirms that there is no exclusion process and that mail shipments from China must be formally entered, which led to the US Postal Service temporarily suspending Chinese mail for a short period. Notably, CBP issued similar guidance regarding the now-paused Canadian and Mexican duties, meaning that imports from Canada and Mexico may be subject to the same measures if those tariffs are restored next month (or sooner).

Trump’s initial executive order also specified that all Chinese imports are ineligible for duty-free entry under the de minimis program. However, that provision was later clarified in an executive order issued on Feb. 7, which reinstated the de minimis program for all shipments until CBP develops and implements systems to efficiently collect duties on low-value shipments.

In response, the Chinese government announced retaliatory measures, including a 15% tariff on certain types of coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, and certain vehicles. These measures take effect on Feb. 10. China has also announced new export controls on critical metals and related technologies. And as part of its retaliatory measures, China placed two American companies (Illumina and PVH Group) on its unreliable entities list and contemplated antitrust investigations into leading US technology companies.

Where does this leave us?

For all of the back-and-forth, only new Chinese tariffs have entered into force. But this pause is likely little more than an intermission in tariff actions by the Trump administration. Indeed, the Canadian and Mexican tariffs are suspended only for a month and could be reimposed at any time. Trump has also indicated that he might increase the Chinese tariffs unless the Chinese government takes action to stem the flow of fentanyl and its precursor chemicals into the United States. Moreover, this past week, the president commented that “substantial” tariffs targeting the European Union are in the works and that the United Kingdom might also be a target for another round of US tariffs. Trump also recently vowed to impose broad tariffs on key industries, including steel, aluminum, semiconductor chips, pharmaceuticals, and oil and gas.

If there is any certainty in the whirlwind of tariff news of the past week, it is that the Trump administration continues to believe in tariffs as an important tool – both for its trade policy and its other policy goals. In his Senate confirmation hearing, Treasury Secretary Scot Bessent described the administration’s use of tariffs as part of a three-pronged strategy “{o}ne will be for remedying unfair trade practices either in an industry or by a country, like steel and China. Another will be as a revenue source, and third is to use it for negotiations with countries like Mexico for the fentanyl crisis.”

Other administration officials, like Commerce secretary nominee Howard Lutnick and senior trade adviser Peter Navarro, have made similar statements, including stressing the need for reciprocal or balanced bilateral trading relationships.

While this sweeping use of tariffs should come as no surprise given Trump’s campaign promises, it does signal a significant shift in US trade policy. While the administration has reiterated its plans for targeted tariffs, based in part on the analyses ordered by its America First trade policy memorandum, the president and other officials have kept the door open to applying broader, universal tariffs.

For instance, during a press conference with the Japanese Prime Minister on Friday, Trump said he plans to announce reciprocal tariffs as early as next week. He did not elaborate on the potential measures but indicated they could be broad. Likewise, the administration has repeatedly pointed to tariffs as a substantial source of revenue, which it intends to pay for other policy priorities, including the extension and expansion of existing tax cuts.

In fact, linking tariff and tax policy may help address broader imbalances in our trading relationships. Many of the United States’ largest trading partners apply a value-added tax (VAT) to both imports and domestic production. However, since the VAT is often rebated when domestic products are exported, an underlying tax imbalance exists in those markets between imports from the United States (which are subject to the VAT) and exports to the United States (which typically have the VAT rebated). This contributes greatly to the bilateral trade deficit between the United States and these countries. And it is also why when Canada, Mexico, and the EU, for example, claim they apply low tariffs on US imports, they are not telling the full story. While it has not always been framed as such by the Trump administration and others, an aggressive use of tariffs may help rebalance US trade at an even more fundamental level.

It is also clear that the administration views tariffs as a useful instrument for achieving non-trade policy objectives. During a recent interview with Politico, Peter Navarro described the recent round of tariffs on China, Canada, and Mexico as actions in a “drug war, not a trade war.” As this flurry of trade measures exemplifies, Trump will not hesitate to use tariffs as leverage for reaching goals on border security and other policy aims.

Editor’s note
This is an opinion column. The views in this article are those of experienced trade attorneys on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.