5 Key Features Of Trump’s New Tariff Regime Explained, How It Will Impact Trade
Trump’s new policy imposes a 10% baseline tariff on all imports, with even steeper penalties on some countries. Mexico and Canada are exempt; reciprocal duties will not be added to auto, auto parts and aluminum
Donald Trump’s reciprocal tariffs, paid by the US companies who import goods into the US, have come into effect. Though Trump’s strategy promises to increase American manufacturing, but it will accelerate further global trade war and consumer prices.
Some of the tariffs range from a minimum of 10% to more than 40%. The US has slapped 26% tariffs on Indian goods.
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Trump’s new policy imposes a 10% baseline tariff on all imports, with even steeper penalties for countries who, according to Trump, have “unfair trade barriers"—45% for Vietnam, 36% for Thailand, and 32% for Taiwan, among others.
“We’re standing up for the American worker, and we are finally putting America first," said Trump, who described April 2 as the Liberation Day.
Let us understand the key features of Trump’s new tariffs and how they will affect global trade and economy.
10% Baseline Tariffs For All; 26% Tax On India
Trump’s tariff plan includes a 10% baseline tariff on goods from all countries, a big shift in current US trade policy.
The baseline tariff applies to about 185 countries in all, even the uninhabited Heard and McDonald Islands, and remote territories of Australia in the sub-Antarctic Indian Ocean, which have more penguins than people and no trade activity.
The European Union faces a 20% US tariff, while Vietnam gets hit with 45%, Japan with 24%, South Korea with 25%, India with 26%, Taiwan with 32%, and Thailand with 36%.
China, which recorded the largest 2024 trade surplus with the US at $295 billion, will see a 34% tariff. Treasury Secretary Scott Bessent noted that when combined with Trump’s 20% February duties—imposed over the US fentanyl crisis—China’s total tariff rate rises to 54%. Trump had pledged a 60% tariff on Chinese goods during his 2024 campaign.
Meanwhile, Britain, Brazil, and Singapore, which ran trade deficits with the US last year, have been exempt and received only the baseline 10% tariff. The US officials argued that many countries would have even larger trade deficits with the US if their trade policies were more equitable.
Russia, despite its $2.5 billion goods trade surplus with the US last year, was not on Trump’s tariff list.
Mexico And Canada Have Been Spared
Mexico and Canada, trading partners and neighbours of the US, have been exempt from the reciprocal tariffs. But the 25% tariffs that Trump previously levied on both countries will remain intact.
Trump levied those tariffs last month as retaliation to the flow of fentanyl from both countries and migrants from Mexico. He later agreed to exempt goods that fall under the United States-Mexico-Canada Agreement (USMCA) – which he signed in his first term.
According to the White House, imports from Canada and Mexico that are compliant with the USMCA compliant goods will continue to see a 0% tariff, while non-USMCA compliant goods will be hit with a 25% tariff.
Auto Tariffs Exempt
Some tariffs will not be added on top of the reciprocal duties. Imports already facing a 25% tariff under Section 232 of the Trade Act of 1962—such as autos, auto parts, steel, and aluminum—will be exempt.
This exemption also applies to industries under ongoing or potential Section 232 national security investigations, including copper, lumber, semiconductors, and pharmaceuticals. A forthcoming annex will list additional exempted products, covering certain critical minerals, energy, and energy products.
Trump is once again using the International Emergency Economic Powers Act (IEEPA)—the 1977 law he previously invoked for February tariffs on Chinese, Mexican, and Canadian goods over fentanyl. Before this, IEEPA has only been used for economic sanctions, not tariffs.
Citing the “large and persistent" US global goods trade deficit, which surged over 40% to $1.2 trillion in 2024, Trump declared a national emergency under IEEPA.
Fear Of Economic Downturn
Some economists have expressed fears that Trump’s larger-than-expected tariffs could result in economic downturn.
Mark Zandi, chief economist at Moody’s, told USA TODAY, that the tariffs will result in higher prices for consumers and weakened profits for companies that import goods. How the economy responds will depend whether Trump moves fully ahead on the duties or agrees to various carve-outs, exemptions and relief for farmers, he said.
Some Republican senators told NBC News that Trump’s tariff decision could lead to short-term pain for US consumers in the form of higher prices.
“Sometimes in business you have to have short-term pain to have long-term gain, and we don’t think this is even going to be that long of a short term, if it is at all. We trust the president," Sen. Markwayne Mullin, R-Okla., said.
Meanwhile, JP Morgan chief economist Michael Feroli said that Trump’s tariffs would bring in considerable revenue but at the expense of higher prices that could hit consumer purchasing power.
“On a static basis, today’s announcement would raise just under $400 billion in revenue, or about 1.3% of GDP, which would be the largest tax increase since the Revenue Act of 1968," he wrote. “We estimate that today’s announced measures could boost PCE prices by 1-1.5% this year, and we believe the inflationary effects would mostly be realized in the middle quarters of the year."
Retaliatory Tariffs From US Trading Partners
Trump’s massive round of tariffs is expected to trigger retaliatory tariffs from key US trading partners, further igniting a global trade war.
Ahead of Trump’s announcement, EU Commission President Ursula von der Leyen hinted at plans for a significant response from Europe in a speech to European Parliament members.
“Europe holds a lot of cards, from trade to technology to the size of our market. But this strength is also built on our readiness to take firm countermeasures if necessary," von der Leyen said, as quoted by USA TODAY. “All instruments are on the table."
Meanwhile, Treasury Secretary Scott Bessent warned countries hit by Trump’s new tariffs not to retaliate. “I wouldn’t try to retaliate," Bessent said in an interview with Bloomberg Television. “As long as you don’t retaliate, this is the high end of the number."
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