Trump victory opens door for historic tariff hikes
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President Trump is readying the most extensive tariffs the United States has seen in nearly a century, but some of those historic levies will probably be used as bargaining chips in new trade negotiations, according to investors, executives and his Republican allies.
The president-elect wants to use high tariffs to rebalance global trade to favor domestic manufacturing and to raise additional government revenue that could help reduce income taxes or pay for other programs.
Trump has vowed to impose tariffs of 60 percent on imports from China and 10 to 20 percent on all other foreign products, while threatening to hit individual companies such as John Deere and items made in Mexico with separate fees.
“He is fully willing to implement the tariffs. And he is fully willing to cut a deal if he thinks a deal is better for the interests of the United States,” said Clete Willems, who served as a top White House international economics aide in Trump’s first term.
Trump’s plans already are the subject of a high-stakes political fight. Within hours of his election victory, Republican Party factions began jockeying for influence over Trump’s economic policy. The early skirmishes over personnel appointments pit Wall Street-friendly Republicans against trade hard-liners who back high tariffs.
Trump’s first trade action will probably target China, since he could rely on existing legal authority stemming from a 2018 investigation of Chinese trade practices, according to several trade lawyers. His ability to impose universal tariffs is less certain.
On Wall Street, many do not expect all the tariffs to materialize. On Wednesday, Michael Feroli, JPMorgan’s chief U.S. economist, said in a research note that “procedural reasons” will probably delay Trump’s universal tariff beyond 2025. But action against Chinese products could come sooner.
Stocks rose sharply in their first post-election session, as investors anticipated faster economic growth from Trump’s tax cut and deregulation plans. The Dow Jones Industrial Average is up more than 4 percent since its Tuesday close, as of midday Friday.
“Markets are confident Trump’s pro-growth rhetoric will become reality while equally certain that the chance of stagflationary tariffs is near zero,” Bob Elliott, chief executive at Unlimited Funds, posted on X.
In an interview, he said highly regulated industries have outperformed other market sectors this week, anticipating that Trump will reduce government oversight. The KBW NASDAQ Bank Index, which tracks major bank stocks, has risen this week twice as fast as the overall market. But market gauges of future inflation, which would rise if investors expected the full array of tariffs to be implemented, have been subdued, he added.
“The threat of tariffs is used as a tool, as part of an arsenal of incentivizing domestic investment and production and less like an independent policy to be implemented on day one,” Elliott said.
Economists have warned that the tariffs together with Trump’s plans for mass deportation of unauthorized migrants will raise prices and slow the economy. Already, the prospect of new tariffs has some executives delaying planned investments.
In Merrill, Wisconsin, Tim Zimmerman, chief executive of Mitchell Metal Products, has been introducing robotic systems to make his factory more competitive. Pairing robots with workers has been so successful that he added 20 new employees, increasing his head count by roughly one-quarter, he said.
But now his plans to spend $2 million on more robots are threatened by potential tariffs that would raise costs for products he makes that cross the U.S.-Mexican border multiple times before being completed.
“Those are the types of major projects that we will place on hold. Or perhaps even cancel if what I expect to be the dramatic cost impact of additional tariffs actually does come into play,” Zimmerman said.
Trump’s negotiating history gives some industries hope that they will dodge the worst tariff impacts. During his first term, he often threatened tariffs – over immigration disputes with Mexico or currency concerns with Argentina and Brazil – that were never implemented. He also indefinitely delayed a final round of tariffs on Chinese goods after reaching a partial trade deal with Beijing in 2019.
“I would expect the president-elect to view some of the tariffs as ‘outcomes’ and some of the tariffs as ways to build leverage for future agreements. This is certainly the approach he followed during his first term,” Steve Lamar, the president of the American Apparel & Footwear Association, said via email.
Perhaps the most important decision for Trump’s economic agenda will be his selection of a treasury secretary. Trump advisers have for months viewed financiers John Paulson and Scott Bessent, who both worked as surrogates for the campaign, as the front-runners for the position.
But Paulson, a billionaire, has vast financial assets that could complicate his selection, including stakes in federal mortgage giants Fannie Mae and Freddie Mac, which are overseen by the Treasury Department, according to two people familiar with the matter who spoke on the condition of anonymity to discuss private conversations.
A hedge fund manager, Paulson is also viewed with skepticism by trade hawks, who doubt he would support the dramatic reduction in U.S.-China trade that Trump promised, the people said.
Bessent, whom Trump publicly praised during the campaign, combines a finance background traditionally expected of a treasury secretary with an embrace of Trump’s trade ambitions. But Bessent may not have the political experience Trump is seeking. Howard Lutnick, who is helping lead Trump’s transition team, has also emerged as a potential candidate to lead the Treasury Department.
Trade hawks instead are promoting Robert E. Lighthizer, Trump’s trade chief during his first term, for secretary. Lighthizer’s reputation as a China critic, however, might spook the stock market, and he is viewed as more likely to be chosen as commerce secretary, the people said.
Paulson, Bessent and Lighthizer did not respond to requests for comment.
The transition’s economic policy deliberations are being run by Kevin Warsh, a financier and former member of the Federal Reserve Board; Joyce Meyer, who worked for Paul D. Ryan (R-Wisconsin) when he was House speaker; and Michael Faulkender, who served as assistant secretary of treasury for economic policy under Secretary Steven Mnuchin, the people said.
Some of the leading candidates for economic posts give Wall Street reason for optimism. The transition team is considering Kevin Hassett, who led the White House Council of Economic Advisers, to head the National Economic Council, the people said.
Casey Mulligan, a University of Chicago economist, is a potential selection for the Council of Economic Advisers. In an interview, Mulligan said he was open to an administration post but had not been contacted by the transition team.
Both Hassett and Mulligan, while supportive of Trump’s trade agenda, are seen as moderating influences on his tariff plans.
The shape of Trump’s emerging economic team has provoked alarm among populists who want a more combative approach.
“Trump is being swamped by all these Wall Street guys – there is going to be a really big fight in the next 30 days,” said one Trump adviser, speaking on the condition of anonymity to describe private dynamics. “Forget January 20 – the real fight is right now.”
The president-elect’s specific tariff plans have not been made public. He could fulfill many of his campaign promises on his own authority. But he would need Congress to approve some of his ambitions, such as revoking China’s routine trade privileges, known as “permanent normal trade relations.”
Trump could justify new tariffs on any other trading partner by conducting a probe that identified trade practices that were unfair to U.S. companies. He used such a finding in 2018 to impose his first round of tariffs on Chinese goods.
The Constitution gives Congress all power to levy taxes, including on imports. In 1930 and 1974, lawmakers delegated limited authority to the president to impose higher tariffs in response to unfair trade practices. Those laws, however, do not allow the president to impose an across-the-board tariff on all imports.
A universal tariff would be nearly certain to face legal challenges from affected companies, consumers or even members of Congress, according to John Veroneau, a trade attorney with Covington & Burling.
“Congress has never given the president broad authority to impose tariffs under any conditions and for any reason he or she wishes,” said Veroneau, who served as deputy U.S. trade representative under President George W. Bush.
But Trump could justify such tariffs by invoking broad presidential powers under the International Emergency Economic Powers Act, a law he used several times during his first term, including against Chinese software applications TikTok and WeChat, according to some trade attorneys.
Alternatively, he could rely on a provision of a 1974 trade law that allows the president to impose a universal tariff of up to 15 percent for 150 days in response to a “large and serious” balance of payments deficit, according to Wendy Cutler, vice president of the Asia Society Policy Institute, and a former U.S. trade negotiator.
That provision has never been used before.
Trump also could seek congressional approval for a universal tariff. Legislation would take time, but it would also make such a sweeping measure “more durable from a legal and political perspective,” according to Kelly Ann Shaw, a trade lawyer at Hogan Lovells who served as an international economics adviser in the Trump White House.
If the president sought to raise tariffs on all $3 trillion worth of merchandise that the United States imports each year, affected groups would probably ask the federal courts to intervene.
“A legal challenge to an across-the-board tariff would have a very strong chance of prevailing,” Veroneau said.
In 2023, the U.S. Supreme Court rejected a legal challenge by importers to Trump’s 2018 decision to impose tariffs on imported steel and aluminum, deferring to the president’s invocation of national security concerns to justify the move.
But a final ruling on the legality of any universal tariff could take months or years. And in the meantime, the tariffs would be in effect.