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The world seems to be entering a phase of heightened uncertainty as Donald Trump prepares to be sworn in as the President of the United States for the second time. Speculation is rife as the President-elect continues to make provocative statements about his foreign policy. At the forefront of his agenda are tariffs, which have become the headline act in Trump’s media communications and public engagements of late.
Since his election victory in November 2024, Trump has threatened a 25 per cent tariff on all products from Canada and Mexico, along with additional tariffs on China. In a pre-inauguration announcement, he unveiled plans for an ‘External Revenue Service’ to “collect tariffs, duties and other foreign revenues.”
Trump, who famously called himself a ‘Tariff Man’ in 2018, proposed sweeping tariffs of 10 per cent on all imports and as high as 60 per cent on imports from China during his campaign. Aides of the President elect are now believed to be working on universal tariff plans targeting select sectors.
The tariff debate is not new for Trump. During his previous term as the 45th US President, he championed tariffs as a tool to address perceived trade imbalances and targeted imports from China, Mexico, Canada and the European Union.
These included tariffs on steel, aluminium, solar panels, washing machines and a large number of Chinese goods. By the end of 2018, these tariffs covered 14.9 per cent of all US imports. In 2019, tariff revenues reached $79 billion — double the 2017 figure.
Trump’s proposed tariff hikes on foreign goods serve multiple purposes: addressing the growing trade deficit, boosting domestic manufacturing, creating American jobs, lowering corporate taxes, enhancing national security and even funding a childcare programme. More broadly, for Trump, tariffs could help ease the pressure on federal tax revenues by providing an alternative source of taxation, protecting American manufacturing and serving as a response to what he describes as unfair trade practices.
Douglas Irwin, author of Clashing Over Commerce: A History of US Trade Policy, described the “three Rs” of US tariff policy — revenue, restriction and reciprocity — all of which resonate with Trump’s vision.
While tariffs are intended to boost domestic US manufacturing and protect American jobs, their impact has been mixed. For example, tariffs introduced in 2018-19 under Trump added jobs in industries like steel production but also increased costs for steel and aluminium, leading to higher prices for consumers. The trade-off between job gains in steel and aluminium production and higher prices could lead to job losses in industries that rely on these materials, as higher input costs hurt them.
A study showed that in the US, for every job in steel production, there are about 80 jobs in industries that use steel, highlighting the risk of job losses in these sectors. Additionally, retaliatory tariffs from trade partners could negatively affect US export industries too.
If tariffs are used as a revenue source, the numbers warrant attention. In 2023, import tariffs generated $80 billion, accounting for roughly 2 per cent of the total federal tax revenues. Estimates suggest that a universal baseline tariff of 10 per cent, as proposed by Trump, would increase this share to only 3.2 per cent.
More importantly, retaliatory actions from trade partners could reduce these gains. Of the billions of dollars that China paid to the US through tariffs in 2018-19, 92 per cent was directed toward bailing out farmers impacted by retaliatory measures from trading partners.
Contrary to claims that foreign companies bear the cost of tariffs, numerous studies from Trump’s first presidency revealed that US businesses importing goods are responsible for paying tariffs. These costs are often passed on to consumers through higher prices for imported goods. Additionally, US producers of tariffed goods tend to increase prices due to reduced foreign competition, further burdening consumers.
India and the United States have often been at loggerheads over the rules governing the international trade order, with both countries bringing a series of cases against each other at the WTO. However, trade tensions came to a head when the first Trump administration raised tariffs on steel and aluminum imports from India and removed India as a beneficiary of its Generalized System of Preferences (GSP) programme — a provision applied by developed countries to allow preferential tariff rates for developing nations.
The tariffs on steel and aluminum impacted 2.3 per cent of India’s exports to the US, while the withdrawal of GSP benefits affected an additional 12 per cent of exports in 2017. In response, India retaliated by imposing tariffs on US exports. Trump referred to India as “the king of tariffs.”
In fiscal year 2024, the US was India’s largest trading partner, with bilateral trade valued at over $190 billion. Key exports from India to the US included diamonds, smartphones, pharmaceuticals, mineral fuels and solar PV cells.
A second Trump presidency signals uncertain diplomatic manoeuvres. His call for tariffs, preference for transactional diplomacy (based on a quid pro quo logic in which every action is viewed as a deal and nothing is done without receiving something in return) and apparent dislike of the multilateral system all point to an increase in India’s trade challenges. These include not only potential tariff hikes on its exports but also an impacted China aggressively pushing goods into Asian markets, including India, and a multilateral WTO system ineffective at addressing grievances.
In recent years, there has been a notable increase in the export of solar PV from India to the US, with India’s share of the country’s module imports rising from 2.5 per cent in 2022 to 10.7 per cent in 2024, amounting to approximately $2 billion in 2023-24. For a country nurturing aspirations in green manufacturing, tariffs on green goods could undermine this positive momentum for India.
Global efforts to transition from a fossil fuel-dependent economy to sustainable, low-carbon development amid intensifying climate threats require rapid production of green technologies. These technologies, such as renewable energy equipment like solar panels, and battery technology must also move seamlessly across borders to replace conventional systems and meet growing demand, ensuring a faster and inclusive global transition.
The Biden administration’s push for green policies can be seen as an extension of the protectionist stance from Trump’s first term, albeit in a new form. The Inflation Reduction Act (IRA), a key policy under Joe Biden, aimed at promoting renewable energy, has already faced criticism for being a form of green protectionism. By incentivising domestic production and reshoring supply chains, the IRA discouragedd reliance on foreign sources for clean energy technologies.
Biden also raised tariffs on steel and aluminum imports from China, imposed a 50 per cent tariff on semiconductors and introduced a 100 per cent tariff on electric vehicles, furthering trade barriers.
With Trump’s return to the White House, it’s likely that US green policies will face early setbacks, with cuts to EV subsidies, reduced support for offshore wind power and potential changes to the Inflation Reduction Act. While it is unclear whether Trump will dismantle or extend the IRA, he is likely to continue the trend of protectionism, possibly implementing high tariffs that are likely to also affect green goods.
The discontinuation of domestic support for green manufacturing, combined with tariff barriers to imports, would mean the green transition in the US may take a hit.
But this shift toward protectionism in the US does not necessarily spell the collapse of the global green goods market. Instead, it may serve to strengthen China’s role in the global green technology supply chain. As of now, China has emerged as a dominant force in the production of critical green technologies, including EVs, batteries and solar panels. This growing dominance positions China to exert considerable economic, trade and geopolitical influence in the years to come.
The rise of protectionist policies and mercantilism, both in the US. and possibly other regions, coupled with intensifying great power competition, could also fragment the global green goods market, impeding the free flow of important technologies and goods to developing countries. Many of these nations depend on affordable imports of clean energy technologies to meet their energy transition needs.