Donald Trump’s 2025 tariff policies explained

Written by: Ahmad Assiri | Research Strategist

What are tariffs?

Tariffs are taxes imposed by governments on imported goods. When a tariff is applied, it increases the cost of the imported goods, making them more expensive for consumers and businesses in the importing country. This is often done to protect domestic industries from foreign competition, raise government revenue, or exert economic pressure on other countries. By making imported goods costlier, tariffs aim to encourage consumers and businesses to buy domestically produced products, thereby supporting local industries and jobs.

Donald Trump’s 2025 tariff policies

Since his return to office, President Trump has taken an aggressive approach to tariffs. In an escalation of policy from his first term, he appears to be sparing no friends or neighbours - removing exemptions such as those previously offered to Canada, Japan and the EU, and applying sweeping new penalties for imported goods. His intention is to bolster domestic production, but the ramifications across global supply chains are vast.

The tariffs fall into four broad categories:

• Product-specific tariffs: a universal levy on all imported steel and aluminium as well as automotive also known as sectoral tariffs. Unlike the first term - where selective exemptions were offered - the current policy removes nearly all exceptions.
• Reciprocal trade measures: the administration intends to deploy “reciprocal” tariffs, designed to match or exceed tariffs imposed by foreign counterparts. This strategy is intended to level the playing field for US exporters facing non-reciprocal trade practices abroad.
• Country-specific tariffs: Canada, Mexico and China with the largest US trade deficit are facing substantial across-the-board tariffs to balance the trade accounts deficit.
• Targeted tariffs: this levy-type measure exhibit the characteristics of a political tool evident in the threats to impose such tariffs on importers of Venezuelan oil.

What industries could be negatively affected?

Different industries experience varying degrees of impact from tariffs, as the effects depend on their specific dependencies and exposure to the imported goods subject to these taxes. For instance:

• Automotive and manufacturing: this sector often relies heavily on imported steel and aluminium, making it vulnerable to immediate cost increases when tariffs are imposed. These cost pressures can squeeze profit margins and may lead to higher prices for consumers.
• Consumer electronics and technology: tariffs disrupt global supply chains, particularly for sectors like technology that depend on components sourced from affected countries. This results in increased production costs as the prices for these imported components rise.
• Agriculture: While initially not the primary target, the agriculture sector can experience significant knock-on effects. For instance, if retaliatory tariffs are imposed by other countries in response to initial tariffs, they might target inputs crucial to farming - such as fertilisers, pesticides, and machinery. This retaliation can escalate costs for these essential agricultural inputs, complicating production processes and increasing operational costs. These dynamics can strain farmers' budgets and reduce agricultural output, impacting sector productivity.
• Retail: with rising tariffs on imported consumer goods, retail companies face the dual challenge of higher input costs and reduced consumer spending power. This combination is likely to result in slower revenue growth and increased price sensitivity among consumers.

What industries could benefit?

Certain sectors are poised to benefit from the protective nature of the tariffs:

• Domestic manufacturing and metals: US steel and aluminium producers are likely to gain market share as imported alternatives become prohibitively expensive. This temporary boost, however, could be offset by increased costs across the broader manufacturing landscape.
• Infrastructure and construction: companies involved in domestic construction may benefit from enhanced availability of locally produced materials, which, in a constrained supply environment, could lead to higher margins and stronger competitive positioning.

How have markets reacted to Trump's April 2025 tariffs?

Equity markets

In US markets, the S&P 500 and Nasdaq 100 responded to tariff news in early April with sharp drawdown to near bear market territory. The high comprehensive tariffs had pulled these indices down significantly, erasing all recent month’s gains. In European markets, major indices like the Euro Stoxx 50 and the DAX reflected intensified trade war anxieties, with declines approaching double digits. Asian markets were similarly impacted, with Japan's Nikkei 225 and China's CSI 300 experiencing significant drops due to the direct implications of tariffs and rising global recession fears.

Fixed income

The fixed-income markets responded by seeking refuge in US treasuries, which saw a surge in demand. As trade tensions increased uncertainty and caused extreme market volatility, there was a major selloff in treasuries – particularly in those of 10-year duration, as dealers sought liquidity and cash bonds. As a result, yields increased significantly, which was a source of worry to major market participants as the treasuries sell off in such an uncertain time could indicate dysfunctional dynamics.

Foreign exchange

In FX markets, the US dollar weakened considerably as markets grappled with uncertainty about trade dynamics and potential retaliations. The possibility of monetary policy shifts that could introduced volatility in major currencies also played a part.

Commodities

In the commodities market, gold did not entirely escape the broader sell-off. However, it has notably served as the most effective hedging tool during these extreme market conditions. Gaining ground at critical stress points, gold cemented its enduring status as a safe-haven and underscored its ability to hold value amid market turbulence. This performance reinforces the strategic value of gold in portfolios, particularly during periods of heightened economic uncertainty.

Impact on global trade & major economies

The 2025 tariff policies have elicited strong responses from major trading partners:

• China: as the primary target of the new tariff regime, China has responded by imposing counter-tariffs on high-value US exports, including agricultural products and machinery. This tit-for-tat escalation deepens the ongoing trade war, forcing both sides to reassess supply-chain dependencies.
• Mexico: facing a dual threat from reciprocal tariffs and its reliance on export-led growth, Mexico has signalled potential retaliatory measures. These include increased tariffs on US industrial inputs, which could hurt bilateral trade.
• Europe: European nations, particularly within the EU, are exploring alternative trade arrangements. With retaliatory tariffs looming on luxury goods, automobiles, and machinery, Europe is likely to accelerate moves toward regional trade blocs and closer economic integration.

How will US businesses respond to Trump's tariffs?

US companies reliant on imported raw materials and components are once again being pushed to reconfigure their supply chains. While the strategic playbook may resemble the 2018–19 trade war period, the current environment is more constrained and less forgiving. Businesses are facing renewed pressure across three key fronts:

• Supply chain diversification: firms are increasingly sourcing from alternative markets to sidestep punitive tariffs. Yet many had already made these shifts during the previous tariff cycle, leaving fewer viable options today. This limits flexibility and could elevate input costs, especially where suppliers are scarce or less efficient.
• Cost absorption vs. pass-through: companies face a trade-off - either absorb higher costs, which erodes margins and may curtail investment, or pass them on to consumers, risking a pullback in demand. The calculus becomes particularly delicate amid an already uncertain inflationary backdrop.
• Increased logistics and operational uncertainty: the effort to rewire global supply chains introduces added shipping costs, longer lead times, and more involved operational decisions. With the threat of further tariff escalations looming, businesses are being forced into costlier, more agile strategies that strain both resources and planning cycles.

The adjustments being made by US businesses today echo the challenges seen in 2018–19 but are occurring in an environment where supply chains are already under stress. This suggests that the impact on manufacturing output and consumer demand may be both faster and more pronounced this time around.

What can we learn from the 2018-19 tariffs?

Historical analysis from the 2018-19 tariff cycle offers several insights:

1. Tariffs have historically dampened growth: during 2018-19, US manufacturing output declined, consumer demand softened, and GDP growth decelerated as tariffs raised costs, disrupted exports, and heightened business uncertainty. The current tariff cycle is expected to have a similar, if not more immediate, impact. With already relatively tight supply chains, the economic slowdown could be swift.
2. Inflationary effects likely temporary: in the previous cycle, businesses eventually absorbed increased costs or passed them on in ways that did not sustain higher inflation. However, today’s more fluid inflation expectations might lead to a second-round effect. Short-term inflation may spike modestly, but prolonged cost increases are not anticipated if companies manage to adjust.
3. Manufacturing faces a faster hit this time: Supply chains have already been restructured post-2018. With limited room for further adjustments, companies will likely have to choose between passing on costs or absorbing them, potentially leading to a faster reduction in capital investment and employment.
4. The Fed’s likely response: historically, the Federal Reserve has paused rate hikes during tariff-induced slowdowns, eventually shifting toward a more accommodative stance. If the current tariffs weigh on activity, employment and growth, expect a policy pivot from a hawkish to a dovish approach.

New tariffs vs 2018-19 tariffs

Today’s tariffs are notably broader and more aggressive in scope compared to the 2018-19 tariff cycle. Back then, the strategy was more targeted. For example, tariffs were primarily levied on:

• Capital goods, which include equipment and machinery used by businesses to produce other goods and services - such as industrial robots, machine tools, or manufacturing systems.
• Intermediate goods, including components and raw materials like semiconductors, steel, aluminium, or chemicals - inputs that are essential in various stages of production but are not final products.

The underlying intention was to exert economic pressure on Chinese industrial supply chains, pushing Beijing to make concessions on intellectual property and trade practices. At the same time, the Trump administration deliberately exempted many consumer goods, such as smartphones and apparel, from the initial tariff waves. These were products that would be harder or more expensive to source domestically and taxing them would risk a direct backlash from US consumers due to higher retail prices.

This selective approach allowed Trump to inflict economic strain on strategic sectors of China’s export engine while mitigating the political and inflationary blowback. The proposed 2025 tariffs, in contrast, appear to dispense with such nuance, suggesting a broader electoral pivot toward outright economic nationalism.

The shift also coincides with signals that Trump may be recalibrating his tariff strategy, favouring broader, pre-emptive levies rather than targeted trade retaliation. The pivot appears to stem from a belief that tariffs serve not only as a negotiation tool but also as a structural pillar of economic nationalism—one aimed at reshoring supply chains and bolstering domestic manufacturing ahead of the election cycle. Such a shift could have material implications for inflation dynamics and corporate margins, particularly if trading partners respond with countermeasures.

What to expect going forward

Short-term

• Inflation: expect modest rises in the initial months as businesses adjust pricing. However, the primary concern will be a contraction in consumer demand and a downturn in manufacturing activity. Early market reactions may be largely negative.

Medium-term

• Monetary policy shifts: Should economic indicators signal a slowdown; the Fed may pivot from its current hawkish stance to a more accommodative posture leaning to dovish stance. Equity markets might experience heightened volatility as investors weigh the risks of slowing growth against inflationary pressures.

Long-term

• Structural trade shifts: Over time, global trade patterns will continue to reconfigure. Economies in ASEAN, Mexico, and Canada could benefit from further supply chain realignments as companies look to diversify. A tariff regime could accelerate the formation of regional trade blocs as affected countries seek alternatives to US dominated trade. Such realignments may drive a structural slowdown in global economic growth, with long-term implications for international investment flows.

Potential opportunities for traders

Equities

The sectors most impacted by recent volatility, such as technology, autos, and industrials, could possibly offer intraday trading opportunities. Despite pressure due to their global supply chain exposure, the heightened volatility in these sectors could be advantageous for traders skilled in navigating rapid market shifts.

Conversely, domestic sectors like consumer staples might present a less volatile trading environment. As investor sentiment potentially shifts toward more defensive positions in response to weakened consumer spending, these traditionally stable sectors could attract inflows, providing opportunities for traders to capitalise on movements driven by shifting market dynamics.

Forex

The trajectory of the US dollar is significantly influenced by Fed, economic growth outlook and ongoing uncertainties in global trade. In the long term, the appeal of the dollar could wane if prolonged trade disruptions persist and the economy slows, prompting the Fed to adopt a dovish stance. Under these conditions, traders might find value in exploring short positions as the dollar's strength diminishes. It's essential for traders to closely monitor Fed communications and global trade developments to effectively capitalise on the shifts in the dollar's trajectory.

Commodities

Gold: Gold typically thrives in environments of economic uncertainty and is often seen as a safe-haven asset during times of market volatility and currency devaluation. With potential slowdowns in manufacturing activity and broader economic disruptions, investors might increase their allocations to gold, driving up its price. Traders can monitor global economic indicators and trade tensions, as these factors can precipitate swift movements in gold prices. Opportunities may arise from both long positions, anticipating further economic uncertainty, or short positions during brief periods of market confidence and stability.

Oil: Oil prices are expected to remain volatile, influenced by both supply chain and fluctuations in global demand due to varying stages of economic trade implications across regions. The current geopolitical landscape, including trade tensions, can also considerably impact oil supply lines and pricing. Traders could benefit from short-term trades that capitalise on news-driven price spikes or drops. Monitoring OPEC decisions, production changes in major oil-producing nations, and economic growth will be important for traders looking to engage in the energy market effectively.

Fixed income

In the fixed-income market, heightened expectations for rate cuts in response to economic slowdown signals could create favourable conditions for US treasuries. As these expectations grow, they generally drive yields lower, presenting opportunities for traders to capitalise on the price movements of treasuries before the anticipated cuts materialise. Traders could monitor upcoming economic data releases and central bank communications. Early identification of trends that might lead to rate cuts can allow traders to position themselves advantageously in treasuries.

A note on volatility
With Trump’s tariffs causing extreme price movements across multiple asset types, there is the potential to profit. But volatility also increases the risk of loss, so it’s important that you research any markets you’re thinking about trading and evaluate how much capital you’re willing to risk. Leveraged products such as CFDs can amplify both profits and losses, so monitor your overall exposure and consider adding stop-losses to close your position automatically if the market moves too far against you.

What could Trump do next?

The policy outlook under President Trump suggests a high likelihood of further escalation:

• Additional tariff increases: should retaliatory measures intensify or if the administration perceives that trade imbalances persist, further tariff hikes or broader application to additional sectors may follow in the form of revenue-generating tariffs.
• Expansion: there is also the possibility of extending tariffs to other trading partners if their trade practices continue to be viewed as non-reciprocal or favouring China trade over US trade. Such measures could further complicate global trade flow and exacerbate trade tensions.