U.S. markets were walloped last week after U.S. President Donald Trump would not rule out a recession this year amid growing concerns about the harmful economic impact of his tariff and trade policies. In fewer than two months in office, Trump has made the trade wars in his first term, which targeted roughly $500 billion worth of trade, look small in retrospect as he has placed or briefly placed tariffs on roughly $1.5 trillion worth of U.S. imports, with more coming down the pike over the next three weeks. While Trump has twice delayed or reduced the scope of his 25% tariffs on Mexico and Canada, the delays have been temporary and have only injected more uncertainty into the U.S. economy, which traders and businesses have loathed. 

To put it mildly, April 2 may be one of the most important days of the year, as virtually all of Trump's tariff threats will come to a head around then. As of this writing, April 2 is when the four-week delay to tariffs on Mexican and Canadian goods compliant with the United States-Mexico-Canada Agreement (USMCA) will expire. That date will also see the return of a review of reciprocal tariffs (which Trump has used to threaten large tariffs on Canada, the European Union and Mexico), and the likely start of investigations and reviews regarding a range of threatened tariffs targeting certain sectors (including oil, automobiles, pharmaceutical goods, agricultural products and semiconductor goods). The day before, on April 1, the White House will relaunch its review of tariffs on China as well. Additionally, U.S. officials have said that each of these tariffs will pile on top of each other. If the Trump administration follows through with all of these tariff threats, U.S. average tariff rates will approach levels not seen since at least World War I. 

While some of these tariffs may be averted or delayed, Trump's threats, coupled with the whiplash of tariffs implemented or suspended during his first two months back in the White House, beg the question: what is Trump's trade doctrine in his second term, and what, if anything, will constrain it?

Early Lessons Learned From Trump's Second Term

Already, there are four key lessons to be learned from the way Trump's trade policy has played out during the early days of his administration compared with his first administration. 

First, Trump appears to still be concerned about the impact of trade policy on stock market performance, just as he was during his first term. When Trump told reporters at a March 3 press conference that he would move forward with 25% tariffs on Mexico and Canada the next day, White House officials reportedly closely observed the almost immediate negative market reaction. Trump's decision to pare back the tariffs over the following 72 hours without any sort of a deal with Canada or Mexico suggests that, as in his first term, the stock market consequences could ultimately convince Trump to reverse course on tariffs. But while this means there may still be some check on Trump's tariff rates, the other insights gleaned over the past two months point to an increasingly aggressive trade policy. 

Indeed, the second lesson learned is that Trump is now far more risk-tolerant. During his first term, Trump usually moved sequentially and slowly through tariff threats to minimize the impact on the U.S. economy, and his threats also primarily focused on China. This reticence made sense at the time, as Trump was facing re-election in 2020 and had not fully united the Republican Party behind him. In his second term, by contrast, Trump has taken a more scattershot approach, threatening sweeping tariffs on all U.S. trading partners. And he has even begun warning in public speeches that some economic pain is needed to achieve his trade goals. Additionally, Trump has threatened to escalate against any retaliatory tariffs that other countries have imposed on U.S. goods, as evidenced by his threat to place 200% tariffs on European wine and double tariffs on Canadian aluminum and steel after the European Union and Canada retaliated to initial U.S. steel and aluminum tariffs. This greater risk appetite reflects both Trump's firm grasp on the Republican Party and the fact that he does not need to be as concerned with economic conditions throughout his term due to him being ineligible to run for reelection. 

The third lesson is that Trump now appears to have far less concern about disrupting relations with long-standing U.S. allies. His decision to move aggressively with tariffs on Canada — arguably the United States' most important ally and economic partner — ostensibly over fentanyl and immigration flows should serve as a warning that Trump is willing to push through with his trade policy, regardless of the impact on Washington's key allies. In his first term, Trump rarely implemented tariffs on U.S. allies and instead focused more on targeting the United States' clear economic rival, China. Now, allies like Australia and the European Union have already found themselves targeted, while others like Japan and South Korea are worrying they are next.

The fourth and final lesson is that the Trump administration now appears more united on trade policy. In the first Trump administration, officials who shared Trump's more protectionist views — including United States Trade Representative Robert Lighthizer and trade policy advisor Peter Navarro — were outnumbered by free trade proponents like Treasury Secretary Steven Mnuchin, Chief Economic Advisor Gary Cohn and even Defense Secretary James Mattis, who all sought to push back on Trump's tariff policy. This is not the case in Trump's second term as Navarro, the lone holdover of that list, has been joined by Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent, who have backed Trump's tariff policies and have done so publicly, with Lutnick routinely appearing on national news shows supporting the president's plans.

The Trump Administration's Emerging Doctrine

The primary goal of Trump's tariff strategy is to shield the U.S. manufacturing sector from international competition, significantly expand the sector, and ultimately position the United States as a major exporter of manufactured goods. Trump's non-trade economic policies — such as deregulation, reducing energy costs and decreasing taxes on corporations — also all appear to serve this aim. From Trump's perspective, reshoring manufacturing will revitalize U.S. employment in the manufacturing sector, which has declined in the 30 years since the World Trade Organization was created, from about 17.2 million workers in 1995 to about 12.7 million workers today. In addition to leading to real wage growth for less educated workers, Trump believes that bringing manufacturing back to the United States will also more broadly strengthen the U.S. industrial base to address national security concerns — a goal that dovetails with the United States' rising strategic competition with China, which Trump views as an industrial exporting powerhouse. There are certainly internal inconsistencies in Trump's strategy to accomplish these goals; after all, high tariffs on imported raw materials and intermediate goods ultimately increase domestic manufacturing costs. However, his objective is clear.

Tariffs are Trump's preferred tactic to boost U.S. manufacturing, and the United States' bilateral trade balance with other countries is his preferred metric to determine whether Washington is ''winning'' in that trade relationship. By imposing high tariffs, as well as other non-tariff barriers, Trump is redefining the cost-benefit analysis for investors and U.S. companies, in the hopes of incentivizing investment into the United States and sourcing from the United States in lieu of other countries. While Trump used this tactic during his first term against China, he did not go nearly as far as he has in his second term, given his recent threats to place 25% tariffs on the European Union and unspecified tariffs on a host of sectors (chips, agricultural products, vehicles, etc), along with his move to impose tariffs on both Mexico and Canada. This demonstrates that in his second term, Trump's trade doctrine is far more focused on using tariffs as a tool against countries beyond China that produce and sell goods in the U.S. market. And it appears Trump will primarily judge the success of his trade policy on its impact on trade deficits and overall investment in the United States.

Trump and his Republican Party are also eyeing tariffs as a potential way to generate government revenue to offset an extension of tax cuts or new tax cuts, which would further incentivize investment in the United States. However, from a practical perspective, revenue generated from tariffs cannot replace income taxes or fully pay for tax cut plans.

From a legal perspective, the Trump administration's current strategy appears to stretch the legal interpretation of trade powers as much as possible in order to enact tariffs and other restrictions. Indeed, the stated legal rationale of the investigations or goals of various trade authorities that Trump is utilizing to place tariffs on other countries appears to be detached from what Trump and other administration officials are focusing on overall — namely, boosting U.S. manufacturing. In other words, the White House seems to be using whatever legal justification it can find to minimize court challenges to its tariff strategy. 

This has been most clear with Trump's 25% tariffs on Mexico and Canada and 20% tariffs on China, which are ostensibly over fentanyl and immigration flows amid what the administration has declared to be an emergency at the U.S. southern border. While the border issue is a legitimate U.S. concern with respect to Mexico, this justification falls apart when being applied to Canada considering there were just 43 pounds of fentanyl seized at the U.S.-Canada border in FY 2024 — and more fentanyl flowed northward than southward — compared with the over 21,000 pounds seized at the southern border. Trump needed a legal justification for tariffs on Mexico and Canada, and the fentanyl and migration justification has been the mechanism. The same has also been true with Trump's tariffs on metals like steel, aluminum and copper, which are being justified using a flimsy argument that steel imported from treaty allies is a national security threat. The same will be true if Trump's reciprocal tariffs are implemented, as the fact that the White House is investigating other countries' VAT systems and subsidies in deciphering who to target with those tariffs — far beyond just the generally small tariffs levied by U.S. trading partners — suggests an effort to justify much larger tariffs than reciprocal tariffs alone would do. 

While the Trump administration appears willing to negotiate with trading partners, the explicit goal of talks is clear: restrict imports and buy more U.S. goods. Tariffs are just one tool to reduce bilateral trade deficits and shield domestic manufacturing. Thus, in any trade talks with other countries, the White House will likely seek quotas or voluntary export restrictions that are designed to reduce exports to the United States, along with investment promises by companies from the country in question, and promises by or deals with foreign countries and companies to buy more U.S. goods.

There is precedent for this, as the trade deal Trump reached with China during his first term kept most tariffs in place and focused on China promising to buy more U.S. goods. Trump's deals with other countries to suspend steel and aluminum tariffs during his first term also centered on those countries agreeing to a quota for exports to the United States. In his second term, Trump may opt for deals with countries that do not include explicit enforceable agreements to buy more U.S. goods as a way to exit trade tensions in response to potential domestic economic concerns. But whether the United States agrees to trade deals with other countries in the coming years will thus have less to do with how negotiations unfold, and more to do with domestic pressures forcing Trump to reverse course and cobble together a deal to save face.

Economic Concerns Remain a Constraint

Economic conditions remain a key variable that could lead Trump to revise, delay or narrow his tariff strategy in the future, as it is unclear to what extent and for how long Trump is willing to accept economic pain. Economically, this pushback can occur in several ways:

• Market pressure: First, Trump's tariffs and the uncertainty over future trade policy are harming market sentiment and stock market performance. This can certainly result in enough economic harm that Trump abandons his plans. However, if tariffs are introduced and uncertainty around Trump's tariffs goes down (i.e. because people expect them), the stock market would likely recover, barring a major recession. Thus, over the long run, Trump may view new record levels for various indices as proof his tariffs are working. 
• Inflationary pressure: Trump's tariffs will increase U.S. inflation and the cost of living, which is currently a major political issue among American voters. Estimates vary, but inflation could rise by up to one percentage point soon after most of Trump's currently threatened tariffs go into effect. While this is most likely a one-off impact, it will hurt lower- and middle-class Americans the most, creating a potential political liability in next year's midterm elections. 
• Economic pressure: The tariffs will slow U.S. economic growth, with some estimates placing the impact on GDP growth reaching as much as 1.2 percentage points, which may be enough to tip the United States into a recession. Multiple quarters of negative economic growth would likely strongly incentivize Trump to change course, but the feedback loop to have tariffs disrupt growth to that level would not be instantaneous. This means tariffs could be in effect for months, if not a year, before the true impact is reflected in quarterly GDP figures. 
• Business pressure: Given that Trump is a businessman himself, warnings from other U.S. business leaders about job firings and other potential negative impacts as a result of new tariffs could also help convince Trump to shift his trade strategy. This has already occurred with Trump's quick pivot away from tariffs on vehicles and car parts from Mexico and Canada after automakers convinced Trump to delay tariffs until April. However, Trump has insisted those tariffs will not be delayed again, suggesting that Corporate America is only having some success in restraining Trump's tariff threats.

Politically, Republican pushback against the tariffs may be another constraint, but it appears unlikely to be a major one by itself. Trump's tariffs will economically hit Republican districts hard as foreign countries are typically retaliating with their own tariffs on goods that are primarily produced in Republican-dominated areas, such as rural America's agricultural goods. But given the level of political polarization in the United States and how politically dominant Republicans are in many rural areas, major economic struggles for these areas may not result in political turnover or threats to conservatives in Republican-leaning districts. Moreover, the days of the Republican Party being dominated by free trade supporters are over, and there are few strong voices left in Congress that will likely stand up to Trump on tariffs, especially as Trump-aligned political action committees (PACs) are flush with billions in cash that vulnerable Republican congresspersons will want to tap into and avoid critiquing tariffs that could lead them to be challenged by a more Trump-aligned rival in 2026 Republican primaries. This means that any move by the Republican Party members against the tariffs, beyond occasional rhetoric, may not emerge until after the primary season or midterm elections. 

Lessons for U.S. Trading Partners

The emerging Trump trade doctrine has many lessons for U.S. trading partners and paints a picture of lingering trade tensions — and potentially tariffs — that last at least the next two years until the U.S. midterm elections, if not much longer. Mexico and Canada are in a difficult position given that more than three-quarters of both countries' exports go to the United States, and that USMCA is scheduled for a review over the next year. If Trump's goal is to focus on reducing bilateral trade deficits and boosting the manufacturing sector, there is little that Mexico and Canada can do to appease Trump directly with concessions other than those that ultimately hurt their own manufacturing sectors. The two may ultimately have to agree to such painful concessions in the USMCA review, where the United States will likely push for tighter rules of origin (i.e., regional content) levels and potentially even U.S.-specific content requirements for manufacturing. Ultimately, both countries will also likely seek a long-term diversification strategy away from the United States given the possibility that Trump's protectionist views become more mainstream among Republicans and are maintained as U.S. policy after Trump leaves office. Nevertheless, the level of North American economic integration means tariffs will also have a relatively large impact on the United States, especially in border states like Michigan and Texas, which means that the feedback loop to remove tariffs on Mexico and especially Canada will be stronger. 

Compared with Canada and Mexico, the European Union will find it more difficult to appease Trump due to the bloc's much lower trade and economic integration with the United States, which will weaken the negative feedback loop in the United States driving calls to remove tariffs. The European Union has so far responded to Trump's tariff threats with a carrot-and-stick approach. In addition to preparing and implementing retaliatory tariffs, Brussels has offered Washington concessions, including reduced tariffs on U.S. vehicles and increased purchases of U.S. liquified natural gas. The challenge for the European Union, however, is that Trump's primary trade interest with Europe appears to be focused on pharmaceutical and vehicle imports. Neither the European Union's offer to buy more LNG nor its offer to reduce tariffs on U.S. vehicles would achieve that objective, as even if EU tariffs on vehicles are reduced, U.S. car exports to Europe would remain small given that U.S.-based automakers rarely set up shop in the United States to export beyond North America. The European Union, therefore, has limited trade-related concessions that it can give the United States, which may force it to try to offer concessions on other issues, like defense spending, to appease Trump. However, even those offers would be unlikely to neutralize the threat of U.S. tariffs because they still fail to serve Trump's primary trade goals of boosting the U.S. manufacturing sector and reducing bilateral trade deficits. 

For China, it appears that there is little the government can do to appease Trump and reduce its trade surplus with the United States without more tariffs. While the European Union, Mexico and Canada all have trade surpluses with the United States, they are relatively narrow ones. On the other hand, the United States imported nearly $439 billion worth of goods from China in 2024 and exported just $143.5 billion goods to China. Trump's new 20% tariff brings the total level of his tariffs on China to 45% for most goods. For Beijing, this confirms that U.S. tariff pressure is here to stay and will likely intensify. China will retaliate with its own various measures, including tariffs, export controls and restrictions targeting U.S. companies. However, the feedback loop in the United States that might compel Trump to suspend tariffs on China is virtually non-existent, given that countering China is a bipartisan issue in the United States, as evidenced by former President Joe Biden's efforts to expand the U.S. tariffs on China that Trump imposed during his first term. 

The Long-Term Upshot

Even though the Trump trade doctrine will create stress in the short and medium term for many foreign countries, it may also, paradoxically, make the United States a weaker economic competitor in the long term. If Trump fails in his agenda, which appears highly likely, and tariffs remain in place, it will compel Canada and Mexico (and Europe and China) to diversify their trading relationships away from the United States. An extended period of high tariffs would also hurt U.S. productivity by increasing the cost of inputs and reducing capital efficiency, which would ultimately drag down U.S. economic growth potential and the global competitiveness of U.S. exports.

For much of the last four decades, the United States' openness to trade and relative economic liberalization have given it an advantage over other Western countries. But that advantage is now at stake, which will be the focus of a second column on this subject.