Day one of President Donald Trump’s second term began with a flurry of executive orders, many of which were aimed at tariffs and trade restrictions. Though Trump’s initial series of orders seemed to be a continuation of his first term in office, other policies were more novel and tailored toward a growing focus on Mexico and Canada.
One of Trump’s first actions in office was to launch his “America First Trade Policy,” which directs federal agencies to investigate the country’s trade deficits, the movements of immigrants from Canada, China, and Mexico, and refocus trade strategy to be a matter of national security. Though it is currently unclear which of Trump’s orders will survive court challenges, U.S. trade policy — at least in the current moment — has been fundamentally changed.
To help understand the challenges and opportunities ahead, we have collected some of the most pressing of Trump’s orders on tariffs and trade, pairing them with key insights from Columbia Business School experts.
A New Trade War with China Means More Economic Uncertainty
Trump’s first term was marked by an aggressive trade war with China, in which the president imposed tariffs on steel, solar panels, medical devices, as well as hundreds of billions of dollars in other goods. At the time, the administration promised that the tariffs’ burden would largely fall on China. However, this was not the case.
Instead, according to David Weinstein, director of CBS’s Center on Japanese Economy and Business, “the 10-25 percent tariffs on $362 billion of goods imported from China have been passed on to U.S. consumers and firms purchasing Chinese intermediate inputs.”
The tariffs had an especially large impact on lower-income households, who spend much of their income on low-priced Chinese goods, such as toys and electronics.
As part of his series of initial executive orders, Trump directed the Office of the United States Trade Representative to assess China’s compliance with the trade orders of his first term and recommend actions, such as the imposition of tariffs, as needed.
Additionally, Trump asked the U.S. Trade Representative to consider additional tariffs “with respect to industrial supply chains and circumvention through third countries, including an updated estimate of the costs imposed by any unfair trade practices …”
According to research co-authored by Weinstein, stocks fell, on average, more than one percentage point per day over the 11 days that followed announcements of U.S. and Chinese tariffs during Trump’s first term. The tariffs also triggered a 4.1 trillion decline in the U.S. market, spread across the announcement days.
“All told, when you consider all the ways that the trade war has hurt U.S. firms and consumers, we estimate the trade wars have reduced the welfare of U.S. citizens by about 3 percent. That’s because, beyond the direct impacts on consumers and companies, the trade war likely contributed to increased economic uncertainty, a breakdown in the world trading system, and lower productivity growth,” Weinstein said.
Trump also ordered members of his cabinet to investigate the feasibility of establishing, designing, and implementing an External Revenue Service. The agency would be responsible for collecting tariffs, duties, and other foreign trade-related revenues.
Why Targeting Mexico and Canada Could Mean Higher Prices
Among Trump’s orders was one to assess compliance with the United States-Mexico-Canada Agreement, which he signed in 2020 to replace the North American Free Trade Agreement. Trump’s focus appears to be on the impact of the USMCA on American farmworkers, ranchers, and related service providers. The order was followed by another to examine flows of immigrants and drugs from Canada and Mexico into the U.S.
It’s the latter order that appears to be fueling Trump’s musing over a 25% tariff on goods imported from the U.S.’ two neighbors. Despite a pre-inauguration statement on Truth Social promising otherwise, that tariff was not a part of the president’s day-one executive orders, however Trump did threaten that such tariffs would be implemented on February 1st. Following the news, the U.S. dollar fell, while the euro, Canadian dollar, Mexican peso and Chinese yuan began to rise.
At the same time, Trump’s orders also barred new asylum claims at the border and moved to end birthright citizenship, among other anti-immigration policies. For U.S. consumers, a tariff on the country’s largest trading partners coupled with severe restrictions on immigration is likely to inflame upward price pressures, according to economist Brett House, Professor of Professional Practice in CBS’s Economics Division.
“A tariff is not akin to raising the cover charge on a bar. It’s much more like raising the prices on every drink on the menu,” House told ABC recently.
In the last Bureau of Labor Statistics’ report before Trump’s inauguration, the agency reported a slight deceleration in its core inflation reading, which excludes food and energy prices, to 3.2%.
Trump’s push to reduce regulatory burdens — another key component of his executive orders — might offset some of these price pressures, according to House. Overall, however, additional tariffs, especially on Mexico and Canada will likely make it harder to lower inflation long term.
