The new Trump administration promises the most disruptive change in Washington, D.C. ever seen. From the inaugural speech and into the second week of the new administration, there is much speculation about the extent tariffs may be used to protect domestic industries from the unfair practices of foreign companies and foreign markets, raise revenue — even replacing income taxes with tariffs — and as leverage in negotiations.
President Donald Trump stated in the inaugural speech, “I will immediately begin the overhaul of our trade system to protect American workers and families. Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens. For this purpose, we are establishing the External Revenue Service to collect all tariffs, duties and revenues. It will be massive amounts of money pouring into our treasury coming from foreign sources.”
The America First Trade Policy released on January 20 is directed to nine government entities.
It states: “Americans benefit from and deserve an America First trade policy. Therefore, I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”
In the policy, President Trump describes a possibility of various trade actions and directs federal agencies, by April 1, 2025, to investigate potentially unfair trade practices, calls for an assessment of previous trade deals, particularly those with China, Mexico and Canada, and mentions again creating a new agency, the External Revenue Service, to collect tariffs.
The U.S. government already has an agency, U.S. Customs and Border Protection, that collects tariff revenue for the United States.
The America First Trade Policy also begins the public consultation process on the United States-Mexico-Canada Agreement (USMCA) in preparation for the July 2026 review of the agreement.
Types of Tariffs
Tariffs can be country specific under Section 301 of the Trade Act of 1974;
Tariffs can be product specific under Section 232 of the Trade Expansion Act of 1962 to protect national security, or
Tariffs can be universal or global, perhaps citing a national economic emergency to provide legal justification for implementing them under the International Economic Emergency Powers Act — although this has never been used.
Temporary tariffs of 15% for 150 days can be imposed via Section 122 of the 1974 Trade Act.
There also has been discussion of slowly ramping up tariffs month by month, rather than taking an aggressive approach, to help boost U.S. negotiating leverage and avoid inflation.
The administration has explored tariff plans that would be applied globally to every country but not all imports.
Campaign/Post-Campaign Pledges
The Trump campaign pledge included 10% to 20% tariffs on all imports. For China, Trump threatened 60% tariffs to cut its trade surplus, 10% tariffs if it didn’t halt fentanyl shipments and 100% tariffs if it tried to create a rival currency to the dollar.
Also threatened was a 25% tariff on goods from Mexico and Canada to pressure those countries into taking action on illegal migration and fentanyl entering the United States.
On inauguration day, President Trump said that 25% tariffs on Canadian and Mexican goods could take effect on February 1. On his second day in office, he announced the first wave of tariffs would hit China on February 1.
Davos Statement
On Thursday, January 23, Trump spoke via video to the World Economic Forum held in Davos, Switzerland. “My message to every business in the world is very simple: Come make your product in America, and we will give you among the lowest taxes of any nation on Earth,” Trump told the gathering. “But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff … which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt.”
Colombia
On Sunday, January 26, President Trump imposed an emergency 25% tariff on all goods imported from Colombia when President Gustavo Petro turned away two U.S. military aircraft full of detained Colombian illegal migrants. The tariffs would increase to 50% in a week.
The Trump administration canceled the tariff threat when Colombia agreed to accept deportation flights. Colombia has a GDP of $364 billion and a population of 52.2 million as of 2023. Colombia was the second country in South America to join the Organization for Economic Co-operation and Development (OECD), becoming a member in 2020, a decade after Chile. The United States had a longtime free trade agreement with Colombia — in force since May 2012. Colombia is the third-largest U.S. trading partner in Latin America. The United States is Colombia’s largest trading partner with $33.8 billion in two-way trade in 2023 and a $1.6 billion U.S. trade surplus.
In 2023, Californian exports to Colombia totaled $514 million. Since 2006, exports to Colombia have nearly tripled. Colombia is California’s 38th largest export market. Total imports from Colombia to California in 2023 were $1.9 billion.
Impact
Economists have warned that Trump’s tariff plans would raise costs for businesses and consumers, hampering another of his campaign promises — to reduce inflation.
On December 18, 2024 the Congressional Budget Office released its assessment of the economy-wide effects of then President-elect Trump’s proposed global tariffs, plus retaliation by trading partners. The CBO detailed both positives with lower budget deficits due to increased revenue and negatives with a decline in gross domestic product (GDP) and an increase in inflation.
The CBO further acknowledged that because the United States has not pursued tariffs on large scale for 50 years, the results of the assessment are very uncertain.
CalChamber Position
As we are at beginning of a new federal administration, it is incumbent upon the California Chamber of Commerce to reiterate its long-held support for a national free trade agenda. The CalChamber supports free trade worldwide, expansion of international trade in investment, fair and equitable market access for California products abroad, and elimination of disincentives that impede the international competitiveness of California business.
The CalChamber opposes protectionist-oriented legislation (which would include tariffs) that will result in higher prices to the consumer for the specific product protected and limited choices of products for consumers. Protectionist legislation causes a net loss of jobs in related industries, retaliation by our trading partners and violates provisions of the World Trade Organization, as well as free trade agreements.
The CalChamber will continue to focus on lowering tariff and non-tariff barriers to support the expansion of American exports. While strategic use of tariffs or the threat of tariffs may be a meaningful negotiation tool, the CalChamber supports efforts to reduce taxation and regulatory burden as a means to create jobs in economic growth.
The CalChamber seeks commercially meaningful outcomes in negotiations with regions around the world and supports bilateral, regional and multilateral trade agreements which are critical to consumers, workers, businesses, farmers and ranchers, and would allow the United States compete with other countries that are negotiating agreements with each other.
The Biden administration was not proactive in any form of trade agreements. It is hoped that the Trump administration will focus on the promotion of trade agreements versus a heavy tariff policy. During the first Trump administration, negotiations were started with both the United Kingdom and Kenya to establish free trade agreements.
What the Trump administration trade policy will do is to highlight the importance of promoting subnational diplomacy, as it builds more layers and durability into the fabric of U.S. international partnerships and adds to the country’s global diplomacy by building lasting relationships among leaders at many levels.
The CalChamber assures our international trade and investment partners that California continues to value international trade and investment.
Staff Contact: Susanne T. Stirling
