By Bob Brewer, Braumiller Law Group
The United States has a long history of using tariffs. The first significant tariff legislation was the Tariff Act of 1789, signed by President George Washington. Tariffs have been used for various purposes over the years, including protecting domestic industries, generating government revenue, and negotiating trade agreements. The use of tariffs however has evolved, with significant changes during different historical periods, such as the high tariffs of the 19th century and the shift towards free trade in the mid-20th century, as well as the current U.S. trade war with China, and possibly soon to be with Mexico and Canada.
Tariffs used as leverage for political maneuvering is nothing new. For example, tariffs have been used as leverage for political purposes throughout history. Here are a few notable examples:
- Smoot-Hawley Tariff Act (1930): This act raised U.S. tariffs on over 20,000 imported goods to record levels. It was intended to protect American industries during the Great Depression but led to retaliatory tariffs from other countries, worsening global trade relations
- Trade War with China (2018-today): The U.S. imposed tariffs on Chinese goods to address trade imbalances and alleged unfair trade practices. China responded with its own tariffs on U.S. products, leading to a significant trade conflict
- Tariffs on European Goods (2018): The U.S. imposed tariffs on steel and aluminum imports from the European Union, citing national security concerns. The EU retaliated with tariffs on iconic American products like Harley-Davidson motorcycles and bourbon, aiming to exert political pressure
- Tariffs as Foreign Policy Tools: Tariffs have been used to exert pressure on countries that do not align with U.S. political goals. For example, tariffs can be imposed to discourage trade with nations during geopolitical tensions
These examples illustrate how tariffs can serve not only economic purposes but also as tools for achieving broader political and strategic objectives. When a considering some of these strategic objectives via the use of tariffs the Trump administration has a list of scenarios with various countries where the formula may be implemented to achieve a certain remedy/outcome. One favorable to the “America First” policy.
For instance, the threat of tariffs on Mexico goods until the migration at the border is brought under control. Meaning, back to 2020 numbers during the pandemic.
Another looming large example recently made public is the threat of using tariffs on those BRICS countries who are poised to challenge the U.S. dollar’s dominance on a global scale. BRICS used to be just five countries that had come together to form a more perfect union in the face of the QUAD, with India as a double-dater. Now, Brics is on the verge of acquiring more countries and is positioning itself to change the world order. Enter into the conversation Donald Trump who recently announced that he would impose a 100% tariff on BRICS nations. Tariffs come with a new definition in 2025, which will be a tool for geopolitical leverage. The proposed tariffs would remain until those nations commit to not backing a new currency to replace the dollar.
In a post on Truth Social, Trump said the 100% tariff would affect all BRICS countries—Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates—until they commit to not creating a new BRICS currency or back another currency that could replace the “mighty” dollar.
China, Iran, Ethiopia and Russia aside, why rock the boat with some of these favorable trade partners? For instance, in 2024, bilateral trade between the U.S. and the UAE is an estimated $34 billion, and UAE is the largest market for U.S. exports in the Middle East. Also, total trade in goods and services between the U.S. and Saudi Arabia is currently approximately $50 billion annually. Saudi Arabia also pumps billions onto the U.S, economy via FDI. Annual trade with South Africa is around $30 billion annually, not a huge number, but not inconsequential. As for Brazil, in 2024, the total trade in goods and services is projected to be $70 billion. No country pumps more FDI into Brazil than the U.S. Egypt trade with the U.S, stands at around $10 billion annually. Meh.
Not taking into consideration that there is the possibility of harmful economic side effects with the use of Tariffs as leverage, we might as well take a look at why they may be used against a variety of countries who are not aligned with our policies. Where are we now? It’s all over the news. Trump has proposed imposing significant tariffs on goods from countries like China, Mexico, and Canada. The world has now been informed that he plans to impose a 25% tariff on all products from Canada and Mexico, (Good-bye USMCA?) and an additional 10% on goods from China. The Mexico tariffs are intended to address issues such as illegal immigration and drug trafficking. Mexico could retaliate by placing a high tariff on U.S. product until we stop providing the Cartels with guns and ammunition.
There are also plans to use tariffs as a response to military actions by other countries. For example, Trump has suggested imposing tariffs of up to 200% if China engages in military activities that conflict with U.S. interests. One would think that obviously an invasion of Taiwan would initiate this, as well as a litany of other military actions, but that remains to be seen with the Trump Administration’s position on the island.
As a reminder, in the past several countries have imposed retaliatory tariffs on U.S. exports in response to various trade actions by the United States. China imposed tariffs on a wide range of U.S. goods, including agricultural products, in response to U.S. tariffs on steel, aluminum, and other goods. The European Union (EU) implemented tariffs on U.S. products in response to tariffs on steel and aluminum. Canada responded with tariffs on U.S. goods, particularly targeting agricultural and food product. Mexico also imposed tariffs on U.S. agricultural products and other goods. India imposed retaliatory tariffs on U.S. goods, including agricultural products and Turkey also implemented tariffs on U.S. goods in response to U.S. trade actions. These retaliatory measures have affected various sectors, particularly agriculture, leading to significant economic impacts on U.S. exports.
So, if the incoming administration is going to implement the game plan of leveraging tariffs, it may behoove us to look at just who we currently have any geopolitical dispute with among our trading partners. Let’s set aside Mexico, Canada and China for now, as those are obviously already on the “hit list.”
Germany: The United States and Germany, while strong allies, have had some disagreements and policy differences. There have been disputes over tariffs, particularly during the last Trump administration, tariffs were slapped on European steel and aluminum. Germany, as part of the EU, responded with retaliatory tariffs on U.S. goods. Once a real point of contention, the U.S. had repeatedly urged Germany to increase its defense spending to meet NATO commitments, which is now in line with the 2% GDP. I would not expect that to change, if not grow, as a Russian ship recently fired on a German helicopter.
Japan. The United States and Japan generally maintain a strong alliance, but there are a few areas where they have had disagreements or challenges: While not a major geopolitical dispute, there have been tensions over trade imbalances and tariffs. The U.S. has occasionally pressured Japan to open its markets more to American goods and services. Regarding China and regional strategy, both countries are aligned in countering China’s influence, but there can be differences in approach and strategy. Japan’s economic ties with China sometimes complicate its alignment with U.S. policies, after all China is Japan’s largest trading partner.
South Korea. The recent decision to initiate Martial Law was not good for the relationship, as the Whitehouse was not properly informed prior. Looking ahead, while both countries aim to denuclearize North Korea, there can be differences in the approach and strategy. However, it appears that the days of engagement and dialogue are over, as Kim Jung Un is tearing up anything remotely connecting the two Koreas (even recently a golf course built by S. Korea on their soil) Regarding China Relations, South Korea is caught between its security alliance with the U.S. and its economic ties with China. The U.S. has pressured South Korea to align more closely with its policies to counter China’s influence, which can create friction. Also, there have been disputes over the cost-sharing arrangements for the U.S. military presence in South Korea which President Trump has made very public. It’s the “pay for protection plan.” The U.S. has periodically pushed for South Korea to increase its financial contributions.
Vietnam. Both countries are concerned about China’s territorial claims and activities in the South China Sea. The U.S. supports freedom of navigation operations in the region, which aligns with Vietnam’s interests but can also create friction with China. While trade relations are generally positive, there can be disagreements over trade practices and market access. The U.S. has occasionally criticized Vietnam for currency manipulation and other trade-related issues.
United Kingdom. The implementation of the Northern Ireland Protocol, part of the Brexit agreement, has caused some friction. The U.S. has expressed concerns about maintaining the Good Friday Agreement and ensuring peace in Northern Ireland. As for trade policies, while generally aligned, there have been occasional disputes over trade policies and tariffs. For example, the U.S. imposed tariffs on British steel and aluminum, which led to some tensions, and initiated retaliatory tariffs on U.S. goods. As for China policy, both countries are aligned in countering China’s influence, but there can be differences in approach and strategy. The UK has sometimes taken a slightly different stance on issues like Huawei and trade with China.
Ireland. As previously mentioned, the U.S. has historically been involved in supporting the peace process in Northern Ireland, particularly through the Good Friday Agreement. Any issues related to the implementation of this agreement or changes in the status of Northern Ireland, such as those arising from Brexit, can be sensitive topics. Regarding tax and trade policies, there have been occasional disagreements over corporate tax policies, especially given Ireland’s low corporate tax rates, which attract many U.S. companies. This has sometimes led to discussions about fair competition and tax practices.
India. There have been disputes over tariffs, market access, and trade imbalances. Issues like data localization, e-commerce regulations, and intellectual property rights have also been points of contention. While both countries cooperate closely on defense, there can be differences in approach to regional security issues, particularly regarding China and Pakistan. The U.S. has occasionally raised concerns about human rights issues in India, including freedom of expression and religious freedoms especially when it comes to the female gender. These concerns can sometimes lead to diplomatic friction. I quite frankly still think it’s a head-scratcher that Modi is in both BRICS, and the QUAD. Kudos to him for making that work.
Brazil: Brazil’s growing relationship with China has caused some friction. Brazil has openly embraced closer ties with Beijing, which includes economic partnerships and political support. This stance sometimes contrasts with U.S. interests, especially as the U.S. views China as a strategic competitor. Add into the mix the Ukraine conflict where Brazil’s approach to the war (It’s fine with them) has also been a point of contention. (They bless it due to the fact that 75% of their fertilizer comes from Russia-it’s like gold.) Brazilian President Luiz Inácio Lula da Silva has advocated for peace negotiations but has refrained from taking a strong stance against Russia, which creates ongoing friction with the U.S. position. There have been long contested trade disputes, particularly regarding agricultural subsidies and market access. Brazil has pushed for greater agricultural liberalization and has taken complaints against U.S. subsidies to the World Trade Organization.
I am sure I am missing some additional disputes with another handful of countries, but if you are interested, you can find those cases on the WTO website. In the end, it’s the consumers who pay the price when tariffs are put into play. If a “blanket tariff” statement is made on all imports into the U.S., we could see the side effects in the economy relatively quick, in a negative way, regardless of the newfound money piling up in the U.S. Treasury Department.
One final note: I have to take a look at the world’s most significant instigator of world turmoil at this time, Russia. The answer is yes, the U.S. continues to import a variety of goods from Russia during the war in Ukraine. Some of the key imports include:
- Fertilizers: $1.62 billion
- Inorganic chemicals and precious metal compounds: $1.26 billion
- Precious stones, metals, and coins: $1.16 billion
- Iron and steel: $207.17 million
- Machinery, including nuclear reactors and boilers: $117.14 million
- Wood and wood products: $108.51 million
Yes, the U.S. has imposed significant tariffs on Russian products in addition to sanctions. Here are some key points:
- Column 2 Rates: As of April 2022, imports from Russia are subject to the Column 2 rates of duty as per the Harmonized Tariff Schedule of the United States (HTSUS). This includes higher tariffs on a wide range of products
- Increased Tariffs: In June 2022, President Biden raised tariffs on $2.3 billion worth of Russian imports to 35%. This increase affected 570 categories of products
- Specific Sectors: Tariffs on most metal and metal products were increased to 70%, targeting a crucial sector of Russia’s economy.
The U.S. really needs to take a hard look at their sourcing options. Leveraging tariffs on a country for invading another, well, obviously that isn’t going to produce the desired outcome, especially if you continue to trade with them.
