President-elect Donald Trump is considering imposing a 25-percent tariff on Canadian and Mexican imports because, he has stated, neither country has done enough to stem the flow of undocumented migrants and drugs entering the United States. This is in addition to his campaign promise to place a 60-percent tariff on imports from China and a 10-percent one on imports from other countries.
This broad and promiscuous use of tariffs as a negotiating tactic is misguided and has serious consequences for the U.S. economy. Tariffs on Mexico and Canada will almost certainly result in higher prices, while tariffs on Chinese imports could not only raise costs but lead to shortages of critical goods. Economists estimate additional household costs will be at least $1,700 annually if Trump’s tariffs are enacted. Unfortunately, Trump rebuffed reports earlier this month that he would pare back the tariffs. “Fake news,” he said.
The President-elect’s approach, an expansion of his first-term policies, is misguided, unfocused, and all too familiar. Rather than across-the-board tariffs, the incoming administration should use targeted tariffs to strengthen U.S. manufacturing.
The tariffs Trump slapped on personal protective equipment during his first term exemplified an unfocused trade policy that’s only becoming more unruly. In 2018, his administration began a trade war with China, including Section 301 tariffs on PPE equipment such as masks, gloves, disinfectants, gowns, and other products. These 15-25 percent tariffs were a cause of rising medical supply costs and shortages during the COVID-19 pandemic. The price increase caused a decrease in imports and dwindling stockpiles. Even worse, Trump’s tariffs were not accompanied by any plan to build domestic industrial capacity until after the pandemic began in March 2020. His administration delayed using a 1950s law to compel manufacturers to take up the PPE slack. As a result, U.S. hospitals and consumers could not procure enough PPE equipment at the outset of the pandemic.
The pandemic may have receded, but medicine remains a critical industry that would be affected by Trump’s blunderbuss tariffs in a second term—with alarming results. China supplies us with large amounts of Ibuprofen, hydrocortisone, acetaminophen, penicillin, and heparin. Chinese firms, for example, control 97 percent of the global production of antibiotics. Furthermore, China has control of the upstream materials, such as raw materials and active pharmaceutical ingredients needed for drug production. The Trump administration would be unwise to impose Chinese medical tariffs absent a surge in American capacity.
The incoming Trump administration must take stock of our import dependencies and develop a convincing plan to overcome them. Although the Biden administration, unfortunately, continued some of Trump’s first-term tariffs and imposed its own, it provided a time window to scale domestic production of critical industries.
For instance, in May, it placed a 100-percent tariff on Chinese-made electric vehicles while announcing that it would raise tariffs on EV batteries to 25 percent from 7.5 percent. These tariffs have a negligible impact in the U.S. as China’s largest EV manufacturer, BYD, has no market presence here. Even other Chinese-owned EV makers, such as Polestar and Volvo, have tiny market shares. Allowing Chinese EV makers into the U.S. market before domestic EV manufacturers can scale would be an “extinction-level event,” according to the Alliance for Automotive Innovation, a trade group. Chinese EV makers have had a head start on scaling production as they have benefited from government subsidies long before domestic U.S. competitors.
In the May announcement, the Biden administration also targeted lithium-ion batteries, for which China controls two-thirds of the world’s manufacturing capacity. Continuing to allow Chinese manufacturers to monopolize U.S. battery markets would undermine our supply chain resiliency. Industrial policy measures are explicitly being used to shore up this production and address this vulnerability through a tax credit from the Inflation Reduction Act targeting EV batteries. These tax credits have been paired with loan programs to expand the EV industry. EV adoption has steadily increased in the U.S., and sales increased by 50 percent in 2023 compared to 2022. In 2024, sales increased by 7 percent compared to 2023, indicating increasing sales as brands focus on targeting mainstream consumers. Competition is growing as major automakers such as GM and Ford sold record levels of EVs in 2024. GM has begun to see an increase in EV sales, and this autumn, its CEO said it expects to earn a profit by the end of 2024. This competitive landscape characterizes the industry, as market leaders like Tesla have seen sales decline and lost market share.
The Trump administration also targeted Chinese solar panels, imposing a 30-percent tariff on solar equipment in 2018, with a 5 percent decrease each year until 2022. These tariffs remained in place under President Biden. These tariffs were not accompanied by a plan to scale the production of solar panels in the U.S. As a result of the tariffs, solar panel production from China plummeted, but Chinese manufacturers moved production to Southeast Asian countries.
To combat this circumvention, the Biden administration placed a 50-percent tariff on imports of solar panels from Chinese manufacturers in Cambodia, Malaysia, Thailand, and Vietnam. But, the administration allowed a two-year tariff exemption, which led to stockpiling and a glut of solar panels in the U.S. American firms that install solar panels have been stockpiling Chinese panels in U.S. warehouses and have enough for a year and a half of installations. With shortages of transformers and needed upgrades to aging electrical grids, there is no urgency to import foreign panels and modules rather than wait for domestic suppliers to scale their manufacturing. Domestic suppliers can scale production and take advantage of tax breaks two to three years from now. For example, due to domestic subsidies, the IEA expects the U.S. manufacturing capacity of solar panels to meet 35 percent of U.S. demand by 2028.
The Biden administration, realizing manufacturers need time to scale, has provided a window for them. Last year, the administration announced plans to raise tariffs on Chinese goods, such as medical equipment, graphite, and magnets, to 25 percent by 2026. The administration has already taken measures, such as invoking the Defense Production Act, to incentivize domestic production of these goods to mitigate the risks of major, immediate supply chain disruptions.
As Katherine Tai, the U.S. Trade Representative, has noted, “Tariffs are part of the solution,” but “just slapping them down doesn’t make them effective…you have to have a theory for what you’re trying to accomplish. And for us, it’s about strengthening the American economy with an eye to these critical industries.”
