Tariffs are often at the centre of heated debates in national economies and international trade. But the political forces that influence tariff policies are equally important. The intricate relationship between politics, the economy and tariffs, examining the influence of special interest groups plays out in election campaigns, international negotiations, special interest groups and the court of public opinion. With the new administration in the USA reportedly considering tariffs on Canada, Mexico and China, the fates of tariffs and geopolitics in 2025 are intertwined.
In his first batch of executive orders since gaining office, Trump’s America First Trade Policy highlights the importance of trade policy for America’s national security and aims to reduce the country’s dependence on foreign countries. The Policy will review all existing trade agreements. It also charges the US Trade Representative with investigating “the causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures.” Although Trump has not immediately imposed tariffs, he has stated a desire to introduce the measures on Canada, Mexico, the EU and China.
The news of the policy and promise of tariffs comes against the backdrop of geopolitical divides between developed and developing countries and concerns about the stability of the global economy. These concerns have translated to the polls. Politicians may advocate for tariffs on imported goods to gain power and appease voters worried about foreign competition and economic insecurity, even if these tariffs have consequences. From Indonesia to America, political groups have used protectionist rhetoric and policies to appeal to voters concerned about job losses and economic insecurity. The EU’s Carbon Border Adjustment Mechanism (CBAM) imposes tariffs on emissions-intensive goods imported into the EU. That too has been met with criticism for being a protectionist measure that goes against the spirit of international trade.
Tariffs as bargaining chips
Governments can use tariffs as leverage in international negotiations. By threatening to impose tariffs on imports from another country, a government can pressure that country to make concessions on other issues, such as intellectual property rights or market access. This tactic can be effective in achieving nationally desired outcomes, but it also carries risks, such as retaliation from other countries that can escalate into a trade war. When the USA imposed tariffs on solar panels and washing machines coming from China in 2018, it triggered an ongoing trade war that’s affected the economies of both countries. The economic impacts of the trade war were felt beyond Chinese and American borders: global markets suffered during the tit-for-tat tariffs, disrupting supply chains and pushing companies to the brink of bankruptcy. However, the use of tariffs as a political tool raises ethical concerns. While protecting domestic industries can be a legitimate goal, the cost of tariffs is often passed on to consumers and businesses through increased prices and increasingly hostile trading environments.
Understanding the interplay between political forces, economic interests, and public opinion is essential for businesses, governments and individuals to navigate the challenges of international trade. With an interconnected global economy, the political decisions in one country will have a domino effect on others. With political shifts, new governments and contests for power, the role of tariffs in shaping international relations will only continue to grow in importance.
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