Interpreting America First Trade Policy

What’s Happening: While President Trump paid surprisingly little attention to trade or tariff policy during his inaugural address, just hours later his administration released its “America First Trade Policy” memo, followed by the announcement that 25-percent tariffs on Mexico and Canada may hit on February 1. Later during a press conference, President Trump also suggested he may implement tariffs on China on the same date and floated the idea of 100-percent tariffs on the BRICS nations. The trade memo is broken down into three key sections. Section 2 concerns “Addressing Unfair and Unbalanced Trade,” Section 3 addresses “Economic and Trade Relations with the People’s Republic of China,” and Section 4 covers “Additional Economic Security Matters.”

Why It Matters: While President Trump’s memo did not call for any immediate tariff actions or major alterations to U.S. trade policy, it did call for investigations and reviews that lay the groundwork for future tariffs and trade negotiations. In Section 2, the Department of Treasury and United States Trade Representative are directed to investigate the causes, risks, and solutions to trade deficits, and a universal tariff is suggested as possible remediation. Additionally, the section examines the formation of an External Revenue Service, starts public consultation on the United States-Mexico-Canada Agreement (USMCA), orders a review of all U.S. trade agreements – with a specific focus on those with countries that manipulate their currency – and initiates an assessment of the current $800 de minimis threshold for duty-free imports. Any – or most likely all – of these actions will result in major trade policy decisions in the not-so-distant future, requiring the renegotiation of free trade agreements, the implementation of new tariffs, or the expansion of old ones; they will also likely produce retaliation from trade partners. In Section 3, the document calls for a review of trade between the United States and China and recommends appropriate actions to take, including tariffs. It also calls for reviewing countries that aid China in circumventing U.S. trade laws, assessing legislation limiting China’s permanent normal trade relations (PNTR), updating cost estimates on China’s unfair trade practices, and offers recommendations on corrective actions. Finally, Section 4 orders a complete economic and security review of the U.S. industrial base to determine what import adjustments may be necessary, the result of which will almost certainly lead to federal action. This section also calls for a review of current tariff exemptions and a review to consider expanding the ban on connected cars to cover other connected products.

Looking Ahead: For now, the America First Trade Policy simply calls for a series of reviews. But nearly every section sows the seeds of justification for implementing future tariffs using any authority at President Trump’s disposal (more info on the mechanics of tariff authority can be found here). In other words, the memo is a warning shot to the global community that all economic weapons in the U.S. arsenal are ready to be used as negotiating leverage. For example, some have speculated that the February 1 date for tariffs on Mexico and Canada is a bargaining chip to move up USMCA negotiations to an earlier date. It may also signal the administration’s intention to “correct” U.S. trade deficits and induce domestic manufacturing via USTR investigations that allow for new tariffs in a few months. Evidence for this approach is that China may also be hit with new U.S. tariffs, which are not paired with any clear negotiating objective, on February 1. If the United States levies tariffs on China in February, they would be supported under Section 301, specifically on the Chinese shipbuilding sector (see report here), or via Trump’s use of the International Emergency Economic Powers Act (IEEPA) by citing a national crisis such as the fentanyl epidemic.

Breakdown of the America First Trade Policy Presidential Action

Current tariff revenues as seen below will likely be increased significantly if many of the proposals above are implemented as Peter Navarro, a senior Trump aide, stated he expects tariff revenues of between $350 to $400 billion.