Trump's Ambitious Tariff Plans: Is a Trade War Déjà Vu Looming?

The return of Donald Trump to the American presidency could revive the era of the Smoot-Hawley Act, the 1930 law that caused global trade to plummet by two-thirds with its massive tariff increases. During his campaign, Trump promised to impose tariffs between 10 and 20 percent on all imports, while announcing even more drastic measures for goods from China and Mexico. Economists warn of a significant negative impact on economic growth and rising prices. The Peterson Institute for International Economics estimates that a 10 percent increase in tariffs and retaliatory measures by trade partners could reduce US growth by one percentage point in the following two years. Trump's advisors argue that these threats are mainly negotiation tactics, but such considerations recall similar promises from Trump's first term that were also implemented. Robert Lighthizer, Trump's former trade advisor and proponent of tariffs, will again play a key role. The question remains whether Trump will succeed in implementing his plans. Although he can impose tariffs under certain circumstances, comprehensive measures would likely face legal challenges that could reach the Supreme Court. Going it alone in Congress would be difficult, especially with the slim majority in the House of Representatives. It would be possible to pass the tariffs as part of a budget bill that addresses other Trump policies, but such a merging of different political goals remains a complex undertaking. Stock markets have so far shown only subdued reactions to Trump's financial agenda. While the Mexican peso has fallen against the dollar, US stocks have risen following Trump's reelection. However, the markets' confidence will only prove justified or misplaced in 2025.