In the News Teaching Activity – Why is the USA imposing tariffs on other countries? (Feb 2025)

The USA has threatened multiple countries with tariffs since Trump came to power.

In Trump’s previous term of office, the USA imposed tariffs on China and Vietnam, a country through which many Chinese exports are funnelled, but this time Trump has threatened both Mexico and Canada with high tariffs, though these are currently ‘on pause’. The previous set of tariffs did reduce the US trade deficit with China, but its trade deficit with Mexico and Canada has grown. Increasing trade between the USA, Canada and Mexico may not be a surprise given these countries are (were?!) in a free trade agreement – the USMCA. However, Trump regards the USA trade deficit as evidence that America is subsidising other countries. Economists are concerned about the threatened tariffs – they believe that tariffs reduce social welfare and even the USA will lose out, though it is impossible to predict Trump’s next move.

Trump's changed tack to focus tariffs on Mexico and Canada - why?

1. What is the USMCA and why is it somewhat surprising that the USA it targeting its partners in the USMCA with higher tariffs?

2. Assess the likely impact of the USA economy’s trade deficit on its economic growth,

3. Discuss whether increasing tariffs is the best way to reduce a substantial trade deficit.