2025 Tariffs Explained: Trump’s Global Trade Move

On 2 April 2025, President Donald Trump introduced a sweeping new tariff regime, calling it “Liberation Day”—a move aimed at reshaping the United States’ role in global trade. The initiative includes a 10 per cent baseline tariff on nearly all imports, steep custom tariffs on selected nations, and a 25 per cent tariff on all foreign-manufactured cars.

While the announcement has drawn headlines and sparked responses from world leaders, the rationale behind this trade policy deserves closer scrutiny. Understanding why tariffs are used, how they are calculated, and their broader economic implications can help professionals make more informed decisions in industries ranging from supply chain and logistics to finance and strategic planning.

In this article, The Industry Portal explains the objectives of the new tariff regime, explores how tariffs are typically calculated, and outlines how this shift could affect global trade dynamics and professional sectors worldwide.

What Are Tariffs and Why Do Governments Use Them?

At its core, a tariff is a tax on imported goods. Governments collect this tax from importers, who often pass the cost on to consumers through higher prices.

While tariffs generate government revenue, they are more commonly used today as tools of economic strategy. Countries implement tariffs to:

• Protect domestic industries from foreign competition

• Encourage local manufacturing and reduce dependency on imported goods

• Correct trade imbalances by discouraging imports and promoting exports

• Respond to perceived unfair trade practices, such as dumping or subsidies

Tariffs can also be used as political leverage in negotiations. For example, tariffs may be imposed to pressure another country into changing its environmental or labour standards, or to open up its own markets.

Trump’s Tariff Strategy: What Has Been Announced?

President Trump’s 2025 tariff plan includes three core elements:

1. A 10% Baseline Tariff
Starting 5 April 2025, a flat 10 per cent tariff applies to imports from most countries, including key US allies such as the United Kingdom, Australia, and Brazil.

2. Elevated Tariffs for ‘Worst Offenders’
From 9 April, the US will impose significantly higher tariffs on countries it claims have historically imposed high tariffs or non-tariff barriers on US goods. These include:

• China: 54%

• Cambodia: 49%

• Vietnam: 46%

• Thailand: 36%

• Japan: 24%

• European Union: 20%

• South Africa: 30%

• Taiwan: 32%

3. 25% Tariff on Foreign-Made Cars
This tariff has already taken effect and applies to all foreign-manufactured vehicles, regardless of country of origin. It is expected to particularly affect car exporters in the EU, Japan, and South Korea.

Why Is the US Imposing These Tariffs?

The Trump administration has framed these tariffs as a corrective measure to rebalance global trade relationships and revive domestic manufacturing. The stated objectives include:

• Addressing the trade deficit: The US has long run trade deficits with many of its partners. The administration argues that this reflects systemic imbalances and unfair practices. Tariffs, they believe, will reduce imports and promote domestic alternatives.

• Protecting American jobs: By raising the cost of foreign goods, the policy aims to increase demand for domestically produced alternatives, thus boosting employment in manufacturing and related industries.

• Encouraging onshore investment: Tariffs are intended to incentivise companies to shift production to the US to avoid additional costs. This supports the administration’s broader industrial policy goals.

• Generating revenue: With significant federal tax cuts in recent years, tariff revenue is also seen as a way to help plug fiscal shortfalls.

However, many economists caution that these goals are not always aligned. For instance, if the tariffs successfully encourage reshoring of production, import volumes could fall—along with the revenue generated from tariffs.

The Economics Behind Trade Deficits and Tariffs

To understand the rationale, it helps to briefly revisit the concept of a trade deficit. A country runs a trade deficit when it imports more goods and services than it exports. While deficits can be politically sensitive, they are not inherently negative. They often reflect consumer demand, currency strength, or investment flows.

However, trade deficits can become problematic if they are:

• Persistent and large

• Associated with job losses in key sectors

• Linked to unfair trade practices such as subsidies or state-sponsored dumping

Tariffs are one tool to address these issues, but their effectiveness depends on factors such as consumer behaviour, elasticity of demand, and the ability of domestic industries to fill the supply gap. In a globalised world with interconnected supply chains, reshoring production is not always immediate or economically efficient.

How Has the US Calculated Its Tariffs?

The method used in 2025 to calculate the new tariffs has received extensive criticism from economists and trade policy experts. Rather than relying on standard models of comparative advantage, tariff reciprocity, or sector-specific analysis, the US government has adopted a simple formula:

Tariff % = US trade deficit with a country ÷ that country’s total exports to the US

This approach overlooks several key elements:

• Services trade, where the US often runs a surplus

• Investment flows, including foreign direct investment (FDI) in US jobs

• Supply chain complexity, particularly in high-tech and automotive sectors

• WTO commitments and bilateral agreements

Notably, some regions with no meaningful trade relationship with the US—such as Diego Garcia, a US military base—were inexplicably included in the tariff list.

This method stands in stark contrast to how tariffs are typically assessed by other governments.

How Do Other Countries Calculate Tariffs?

Most countries use a multi-layered approach to tariff policy, which considers:

1. Sectoral Analysis
Governments analyse the competitiveness of specific sectors before applying tariffs. This includes looking at production capacity, labour market impact, and exposure to international pricing.

2. WTO Bound Tariffs
Countries set bound tariff rates with the World Trade Organization, which act as ceilings. Applied tariffs are usually lower, offering flexibility but also predictability for trade partners.

3. Bilateral Trade Agreements
Many tariffs are reduced or eliminated as part of Free Trade Agreements (FTAs). These treaties often include dispute resolution mechanisms, sector-specific provisions, and clauses on non-tariff barriers.

4. Non-Tariff Measures
Tariffs are only one part of trade policy. Countries also use rules of origin, standards and certifications, quotas, and subsidies to influence trade in more nuanced ways.

For example:

• The EU maintains a Common External Tariff, but member states benefit from free trade among themselves

• Japan combines tariffs with non-tariff barriers like product standards

• Canada uses tariff rate quotas (TRQs) for sensitive sectors such as dairy

In contrast, the formula applied by the US in this case lacks the policy depth and consultation process usually seen in international trade strategy.

What Could This Mean for Professionals and Businesses?

For professionals in sectors such as finance, international trade, procurement, and supply chain management, the impact of these tariffs is far-reaching. Key implications include:

• Cost volatility: Sudden price increases in imported materials may disrupt budgeting, forecasting, and inventory planning

• Supply chain adjustments: Companies may need to re-evaluate sourcing strategies, manufacturing locations, and trade routes

• Geopolitical awareness: Understanding the trade environment becomes essential to navigate operational risk and maintain market access

• Career impact: Demand is likely to grow for roles in trade compliance, customs, risk management, and international logistics

Final Thoughts: Strategy, Signal, or Disruption?

The 2025 tariff policy is among the most ambitious trade interventions in decades. Whether it represents a well-crafted industrial strategy or a politically motivated disruption remains to be seen. Its success will depend on how businesses, consumers, and global partners respond.

What is clear is that the tariff regime has introduced a new level of complexity into global trade. Professionals working in internationally exposed sectors must stay informed, agile, and ready to adapt to changing trade dynamics.

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