Tag: Tariffs

The point of trade agreements, above all, is to establish clear rules for cross-border commerce, so businesses can make sensible decisions about importing, exporting, and investing. One year into Donald Trump’s second presidency and that rationale is pretty much out the window when it comes to trade relations with the United States. The U.S. seems to have no compunction about ignoring agreements to which it is a party. This has major implications for value chains.

Diplomacy is a stop/start process, and no trade agreement is perfect. But agreements mean little if there is scant likelihood of compliance. Canada and Mexico were hit with 25% U.S. tariffs in 2025 in blatant disregard of the sweeping 2019 trade agreement between the three countries — never mind that negotiations to revise that agreement were already on the calendar for 2026. Colombia and the United States agreed to phase out tariffs on each other’s goods in 2012, but Colombia nonetheless got hit by a 10% tariff on most imports last April. The United Kingdom raced to get in the President’s good graces by striking a vague “Economic Prosperity Deal” in May 2025, but in mid-January Trump threatened it with additional tariffs if it did not support his demand that Denmark yield control of Greenland to the United States. Similarly, the European Union, Japan, South Korea, and other trading partners have found that their painstakingly bargained trade agreements with the United States are not binding.

While the U.S. Supreme Court may soon reject the claim that an “emergency” allows the president to impose tariffs as he desires, It is notable that neither major political party has had much to say about the Administration’s disrespect for U.S. trade agreements. This bipartisan indifference suggests that U.S. adherence to its commitments may remain uncertain even after Trump leaves office.

For more than a decade, many firms that once sourced mainly from China have quietly opened factories or sought suppliers in other countries. That approach, known as “China plus one,” may no longer be sufficient. With the United States now sanctioning numerous trading partners as it sees fit, managing value-chain risk may require multiple options in case a second-choice supplier country falls from Washington’s good graces. “China plus two or three” is likely to be an expensive strategy, making it harder to gain economies of scale, but it may be wiser than assuming that U.S. trade agreements will be adhered to.

Donald Trump is into dominance. In a series of orders since he started his second term last January, he has proclaimed his intention to restore America’s maritime dominance and its energy dominance, to make the United States dominant in cryptocurrency and artificial intelligence, and to maintain the dollar as the world’s dominant currency. And that’s not all. “America’s destiny is to dominate every industry,” he told an audience in Pennsylvania on July 15.

In recent days, Trump reasserted his belief in U.S. dominance by announcing steep tariffs on many countries. His quest for dominance goes beyond eliminating bilateral trade deficits. He has placed tariffs on imports from Canada, supposedly because it allows fentanyl to cross the border into the United States; and on Brazil (with which the United States has a trade surplus) to punish it for prosecuting a former president for plotting the violent overthrow of the government; and on India, supposedly because it purchases oil and military equipment from Russia. Tariffs, he clearly believes, are a useful cudgel to force other governments to conform to his desires.

In the short term, large bilateral trade deficits have made it difficult for trading partners to retaliate when Trump nullifies longstanding trade agreements and announces new import barriers. In the longer term, though, such policies threaten the United States’ central place in the world economy. U.S. disinterest in expanding international trade and negotiating multilateral agreements is not shared by most other countries, which are busily signing trade packs that do not include the United States. Talk about creating a substitute for the World Trade Organization without U.S. involvement is widespread.

Already, traders are responding to America’s anti-trade agenda by finding other partners. “Since this March, China-ASEAN export volumes are now double that of China-US, traditionally the most important route in container shipping,” Bloomberg reports. On August 5, the Bureau of Economic Analysis confirmed that while U.S. imports are declining, its exports are in decline as well. As America withdraws, other countries are moving forward, and U.S. dominance is slowly falling away.