Candice Horbacz
President Trump signed an executive order on January 20, 2025, initiating a new chapter in global trade policy by instructing key cabinet secretaries to develop comprehensive reports on prevailing trade practices and to formulate recommendations for new tariffs, with a mandated deadline of April 1, 2025. This directive marked the official commencement of a renewed focus on trade protectionism, leading to a series of swift and impactful developments. Since this executive order, the landscape of international trade has been characterized by a dynamic escalation, with numerous new tariffs and tariff investigations either threatened, officially initiated, or already imposed on a range of imported goods.
A pivotal legal development occurred in early 2026 when the Supreme Court ruled that the new tariffs imposed under the International Emergency Economic Powers Act (IEEPA) in 2025 were unlawful. This ruling necessitated a significant recalibration of U.S. tariff strategy. Consequently, the administration is now in the process of replacing these invalidated IEEPA tariffs with a combination of investigations and duties levied under established statutory authorities: Section 122, Section 301, and Section 232. This shift underscores a strategic pivot towards more legally robust and historically utilized mechanisms for trade enforcement.
The Evolution of U.S. Tariff Mechanisms
The invalidation of IEEPA-based tariffs has pushed the administration to rely on other sections of U.S. trade law, each with distinct mandates and historical applications.
Section 301 Tariffs: Addressing Unfair Trade Practices
Section 301 of the Trade Act of 1974 empowers the U.S. Trade Representative (USTR) to investigate and respond to unfair trade practices by foreign countries that burden or restrict U.S. commerce. Historically, this section has been a primary tool for addressing issues such as intellectual property theft, forced technology transfer, and market access barriers. Following the Supreme Court’s ruling, Section 301 is expected to feature prominently in the administration’s new tariff strategy, particularly concerning major trading partners perceived to engage in such practices. The previous administration extensively utilized Section 301 against China, and the current framework suggests a continuation, and even an expansion, of this approach.
Section 338 Tariffs: Combating Unfair Subsidies and Dumping
While the provided data does not list specific tariffs under Section 338, it is a crucial component of U.S. trade law that allows for action against foreign government subsidies that distort trade or against dumping practices where goods are sold below cost. Its inclusion in the list of replacement mechanisms indicates a broader strategy to address a wider array of perceived unfair trade advantages.
Section 122 Tariffs: Emergency Balance-of-Payments Measures
Section 122 of the Trade Act of 1974 provides the President with authority to impose import surcharges or quotas in situations of a serious balance-of-payments deficit. While this authority has been used sparingly, its consideration as a replacement mechanism suggests a concern within the administration regarding the overall U.S. trade balance and its potential impact on domestic economic stability.
Section 232 Product-Specific Tariffs: National Security Considerations
Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to investigate the effects of imports on national security. If imports are found to threaten national security, the President can impose tariffs or other restrictions. This section was famously invoked by previous administrations to impose tariffs on steel and aluminum imports. The continued reliance on Section 232 signals an enduring emphasis on protecting domestic industries deemed critical for national defense and economic resilience.
Modeling the Economic Impact: A Refined Approach
The analysis of trade policy, particularly the complex interplay of tariffs and their economic consequences, relies heavily on sophisticated modeling techniques. On October 23, 2025, a significant refinement was introduced to how elasticity estimates are applied to tariffs within the economic models used for forecasting. This methodological update involved adopting a functional form equation and a higher elasticity of -2. This change reflects recent research from institutions like Boehm et al. and the USITC, which highlight the nonlinearity across different tariff rates.
The practical implication of this methodological shift is profound: higher tariff rates are now modeled to cause imports to drop significantly, but not to fall entirely to zero. This nuanced understanding acknowledges that even under severe tariff regimes, some level of trade persists due to various factors, including specialized demand, lack of domestic alternatives, or established supply chains. As a direct result, some tariff revenue estimates, particularly for high-rate tariffs like the 100 percent tariffs on China, are now projected to be higher than previously calculated. This adjustment provides a more realistic assessment of revenue generation, even as it confirms the significant dampening effect on import volumes.
Furthermore, the income and payroll tax offset within the economic models has been updated to reflect the new values stipulated under the One Big Beautiful Bill Act (OBBBA). This legislative change is projected to average 24.6 percent from 2026 through 2035, influencing the overall fiscal impact calculations of the tariff policies. The IEEPA modeling, prior to its invalidation, also covered a range of policies that are now being re-evaluated under the replacement tariff frameworks.
Historical Evidence: The Enduring Economic Debate on Tariffs
The economic consensus among most economists is that free trade generally increases the level of economic output and income, while, conversely, trade barriers such as tariffs tend to reduce both. This long-held principle is supported by extensive historical evidence, which consistently demonstrates that tariffs lead to higher prices for goods and services, reduced availability of products for U.S. businesses and consumers, and ultimately, lower national income, diminished employment opportunities, and a contraction in overall economic output.
Tariffs exert their negative influence through several identifiable channels. One primary mechanism is the direct passing of tariff costs onto producers and consumers in the form of elevated prices. When tariffs increase the cost of imported parts and raw materials, the price of finished goods that rely on these inputs rises, thereby reducing private sector output. This invariably translates into lower incomes for both capital owners and workers. Similarly, higher consumer prices resulting from tariffs erode the after-tax value of both labor and capital income. Such a reduction in the return to labor and capital discourages work and investment, leading to a smaller, less productive economy.
An alternative, though equally detrimental, scenario involves an appreciation of the U.S. dollar in response to tariffs. While a stronger dollar might ostensibly offset some domestic price increases for U.S. consumers, it simultaneously makes U.S. exports more expensive and less competitive on the global market. This leads to reduced revenues for American exporters, which in turn diminishes U.S. output and incomes for workers and capital owners. The disincentive for work and investment persists, resulting in a contraction of the economy. Numerous economists have meticulously evaluated the consequences of the 2018-2019 trade war tariffs on the American economy, with their findings consistently suggesting that these tariffs contributed to higher prices and reduced economic output and employment.
Historical Context: Lessons from Past Trade Wars
The current trade policy environment is deeply rooted in recent history, particularly the trade discussions and actions of the past decade.
2024 Campaign Proposals: A Glimpse into the Future of Trade
Tariffs were a central theme in the 2024 presidential campaign. Candidate Trump notably proposed a new 10 percent to 20 percent universal tariff on all imports, alongside a steeper 60 percent tariff on all imports from China. Further specific proposals included higher tariffs on electric vehicles (EVs) from China or across the board, 25 percent tariffs on Canada and Mexico, and a general 10 percent tariff on China. The Tax Foundation’s analysis of Trump’s proposed 20 percent universal tariffs, coupled with an additional 50 percent tariff on China (to reach a combined 60 percent), estimated a significant reduction in long-run economic output by 1.3 percent, even before accounting for potential foreign retaliation. On the revenue side, these proposals were projected to increase federal tax revenues by an estimated $3.8 trillion on a static basis, or $3.1 trillion on a dynamic basis, from 2025 through 2034.
The 2018-2019 Trade War: Economic Effects and Retaliation
The previous trade war, largely characterized by Section 301 tariffs on imports from China and Section 232 tariffs on certain steel and aluminum imports under both the Trump and Biden administrations, provides critical insights. Using the Tax Foundation’s General Equilibrium Model, these tariffs are estimated to reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by approximately 142,000 full-time equivalent jobs. Interestingly, the model suggests no impact on pre-tax wages in the long run because the capital stock is projected to shrink proportionally to the reduction in hours worked, thereby maintaining a stable capital-to-labor ratio and, consequently, wage levels. Conversely, removing these tariffs would lead to a boost in GDP and employment, as demonstrated by prior Tax Foundation estimates regarding the Section 232 steel and aluminum tariffs.
The retaliatory tariffs imposed by foreign governments in response to U.S. Section 232 and Section 301 actions amounted to approximately $13.2 billion in tariff revenues for those foreign nations. While these are not direct taxes on U.S. exports, they effectively raise the after-tax price of American goods in foreign markets, diminishing their competitiveness. These retaliatory measures are estimated to reduce U.S. GDP and the capital stock by less than 0.05 percent and result in a loss of 27,000 full-time equivalent jobs in the U.S. Crucially, unlike U.S.-imposed tariffs which generate federal revenue, retaliatory tariffs yield no revenue for the U.S. government, while still imposing a cost on the American economy in terms of reduced output.
Tariff Revenue Collections and Household Burden
By the end of 2024, the trade war tariffs had collectively generated over $264 billion in higher customs duties for the U.S. government, collected from American importers. Of this substantial sum, $89 billion (approximately 34 percent) was collected during the Trump administration, with the remaining $175 billion (approximately 64 percent) accumulated during the Biden administration.
Before accounting for behavioral responses in the economy, the $79 billion in higher tariffs translate to an average annual tax increase of $625 per U.S. household. Based on actual revenue collections data, the trade war tariffs have directly increased tax collections by an average of $200 to $300 annually per U.S. household. However, the true cost to households is higher than both these estimates, as neither fully accounts for the reduction in incomes due to tariffs shrinking economic output, nor the loss in consumer choice as individuals and businesses shift to untariffed alternatives, potentially at higher overall costs or lower quality.
Detailed Timeline of the 2018-2019 Trade War and Current Policies
The period from 2018 to 2019 saw the Trump administration impose multiple rounds of tariffs on a diverse array of goods, including steel, aluminum, washing machines, solar panels, and a broad range of products from China. These actions affected over $380 billion worth of trade at the time of their implementation, amounting to an approximate tax increase of nearly $80 billion. The Biden administration largely maintained these tariffs, with notable exceptions including the suspension of certain tariffs on imports from the European Union, the replacement of some steel and aluminum tariffs with tariff-rate quotas (TRQs) for the European Union, the United Kingdom, and Japan, and the expiration of tariffs on washing machines. In May 2024, the Biden administration announced further tariffs on $18 billion worth of Chinese goods, representing an additional $3.6 billion tax increase.
In aggregate, the trade war policies currently in effect account for $79 billion in tariffs, based on initial import values. It is important to note that the total revenue generated will be less than this static estimate because tariffs inherently reduce the volume of imports, are subject to evasion and avoidance, and diminish real income, which in turn lowers other tax revenues.
Section 232 Tariffs: Steel and Aluminum
In March 2018, President Trump announced the imposition of a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. Based on 2018 import levels, which totaled $29.4 billion for steel and $17.6 billion for aluminum, these tariffs would have generated $9 billion and $1.8 billion, respectively. However, several countries were subsequently excluded from these tariffs. Early 2018 saw agreements to permanently exclude Australia from both steel and aluminum tariffs, and to implement quotas for steel imports from Brazil and South Korea, and for steel and aluminum imports from Argentina. In May 2019, tariffs on steel and aluminum from Canada and Mexico were lifted.
In 2020, the scope of these tariffs was expanded to cover certain derivative steel and aluminum products, adding approximately $0.8 billion based on 2018 import levels. A brief reimposition of tariffs on aluminum imports from Canada in August 2020, affecting $2.5 billion worth of non-alloyed unwrought aluminum and resulting in a $0.25 billion tax increase, was eliminated about a month later.
Under the Biden administration in 2021 and 2022, deals were struck to replace certain steel and aluminum tariffs with tariff-rate quota (TRQ) systems for the European Union (effective January 1, 2022), Japan (effective April 1, 2022), and the UK (effective June 1, 2022). While TRQs reduce the immediate cost burden for some U.S. businesses, they still lead to higher prices, and the retention of tariffs at the margin continues the negative economic impact of the previous policy. Currently, tariffs on steel, aluminum, and derivative goods account for $2.7 billion of the total $79 billion in tariffs. Retaliation against Section 232 tariffs targets over $6 billion worth of American products, generating an estimated $1.6 billion in taxes for foreign governments.
Section 301 Tariffs: Chinese Products
The U.S. Trade Representative initiated an investigation into China’s trade practices in August 2017 under the Trump administration, concluding in a March 2018 report that found China engaged in unfair trade. This led President Trump to announce tariffs on up to $60 billion of Chinese imports. The first tariffs, a 25 percent duty on $34 billion worth of goods, began on July 6, 2018, followed by tariffs on an additional $16 billion on August 23, 2018, totaling a $12.5 billion tax increase.
In September 2018, a new round of Section 301 tariffs was imposed: a 10 percent duty on $200 billion worth of goods from China, adding a $20 billion tax increase. This 10 percent rate was escalated to 25 percent in May 2019, increasing the tax burden by $30 billion. Although a 10 percent tariff on an additional $300 billion of Chinese goods was announced for September 1, 2019, this plan saw schedule changes and exemptions. By August 2019, the administration decided that "List 4a" tariffs would be 15 percent instead of 10 percent, a $5.6 billion tax increase. In September 2019, these 15 percent tariffs on $112 billion of imports took effect, adding $11 billion in taxes. Plans for tariffs on the remaining $160 billion were set for December 15, 2019.
However, in December 2019, the administration reached a "Phase One" trade deal with China, agreeing to indefinitely postpone the "stage 4b" tariffs on $160 billion of goods and to reduce the "stage 4a" tariffs from 15 percent to 7.5 percent in January 2020, thereby reducing tariff revenues by $8.4 billion.
A significant update came in May 2024, when the Biden administration, following its statutory review of the Section 301 tariffs, decided to retain them and impose even higher rates on $18 billion worth of goods. These new tariffs, ranging from 25 to 100 percent, target semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural graphite and other critical materials, medical goods, magnets, cranes, and solar cells. Some increases took immediate effect, while others are scheduled for 2025 or 2026, adding an estimated $3.6 billion in new taxes based on 2023 import values.
Section 301 tariffs on China currently constitute the largest portion of the total, accounting for $77 billion of the $79 billion in tariffs. In response, China has imposed its own retaliatory tariffs on over $106 billion worth of U.S. goods, resulting in an estimated $11.6 billion in taxes for the Chinese government.
WTO Dispute: European Union
In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union, authorizing tariffs of up to 100 percent on $7.5 billion worth of EU goods. Tariffs of 10 percent on aircraft and 25 percent on agricultural and other products began on October 18, 2019. However, in the summer of 2021, the Biden administration reached an agreement to suspend these tariffs on the European Union for five years.
Section 201 Tariffs: Solar Panels and Washing Machines
In January 2018, the Trump administration announced tariffs on washing machine imports for three years and solar cell and module imports for four years, following a Section 201 investigation. The washing machine tariffs were extended for two years in 2021 but expired in February 2023. The solar panel tariffs were extended for four years by the Biden administration in 2022, though temporary two-year exemptions were later provided for imports from four Southeast Asian nations starting in 2022, which account for a significant share of solar panel imports.
In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Furthermore, the temporary two-year exemptions expired, and the administration is now conducting additional investigations into solar panel imports from these four Southeast Asian nations for potential new tariffs. These solar cell and module tariffs were estimated to be a $0.2 billion tax increase based on 2018 values, while washing machine tariffs amounted to a $0.4 billion tax increase. Given the broad exemptions and relatively smaller magnitudes, these tariffs are generally excluded from broader tariff totals in current analyses.
Trade Volumes Since Tariffs Were Imposed: A Shift in Global Trade Flows
Since the imposition of tariffs, imports of affected goods have demonstrably fallen, a trend observable even prior to the onset of the COVID-19 pandemic. Some of the most significant declines are attributed to decreased trade with China, where affected imports saw substantial drops post-tariffs and continue to remain below their pre-trade war levels. This reduction in trade with China, however, did not fundamentally alter the overall U.S. balance of trade. Instead, trade volumes with China were largely diverted to other countries, illustrating a shift in sourcing rather than a complete cessation of import demand.
Analysis of import data for key tariff categories reveals these trends clearly (values in billions of dollars):
| Tariff and Effective Date | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | Rate |
|---|---|---|---|---|---|---|---|---|
| Section 232 Steel (March 2018) | $15.90 | $15.50 | $11.40 | $7.10 | $13.50 | $9.50 | $5.50 | 25% |
| Section 232 Aluminum (March 2018) | $9.00 | $9.60 | $8.40 | $5.20 | $7.50 | $9.80 | $5.60 | 10% |
| Section 232 Derivative Steel Articles (Feb 2020) | $0.40 | $0.50 | $0.50 | $0.40 | $0.50 | $0.60 | $0.30 | 25% |
| Section 232 Derivative Aluminum Articles (Feb 2020) | $0.20 | $0.30 | $0.20 | $0.20 | $0.30 | $0.30 | $0.30 | 10% |
| Section 301, List 1 (July 2018) | $31.90 | $30.30 | $22.00 | $20.10 | $24.10 | $26.10 | $23.60 | 25% |
| Section 301, List 2 (August 2018) | $13.80 | $14.80 | $8.50 | $9.60 | $10.30 | $10.70 | $8.20 | 25% |
| Section 301, List 3 (Sept 2018, incr May 2019) | $159.20 | $181.30 | $120.00 | $107.10 | $119.60 | $111.80 | $86.50 | 10% in 2019, then 25% |
| Section 301, List 4A (Sept 2019, lowered Jan 2020) | $101.90 | $112.20 | $113.90 | $101.40 | $104.70 | $102.00 | $84.90 | 15% in 2019; then 7.5% |
| Biden Admin Section 301 Expansion (2024 to 2026) | $7.50 | $8.00 | $5.60 | $8.90 | $9.00 | $15.70 | $18.00 | 25% to 100% |
Note: Steel totals exclude imports from Argentina, Australia, Brazil, South Korea, Canada, and Mexico. Aluminum totals exclude imports from Argentina, Australia, Canada, and Mexico. Beginning in 2022, steel totals also exclude imports from Japan, the EU, and the UK, and aluminum totals also exclude imports from the EU and the UK as respective imports are now subject to tariff-rate quotas (TRQs). Excluding all imports for TRQs overstates the savings from TRQs because tariffs still apply when imports exceed historical levels. Source: Federal Register notices; Tom Lee and Jacqueline Varas, “The Total Cost of U.S. Tariffs,” American Action Forum, Mar. 24, 2022; data retrieved from USITC DataWeb.
The data clearly illustrates the impact of these tariffs. For instance, Section 232 Steel imports, which stood at $15.90 billion in 2017, plummeted to $7.10 billion by 2020 before a partial recovery. Similarly, Section 301 List 3 imports, encompassing a vast array of Chinese goods, dropped from a peak of $181.30 billion in 2018 to $86.50 billion by 2023. This demonstrates that while tariffs effectively reduce direct imports of targeted goods, the overall economic impact extends beyond simple revenue collection, affecting supply chains, consumer prices, and the global competitive landscape. The ongoing policy adjustments and the shift in legal frameworks signify a continued effort by the U.S. to shape international trade in line with its economic and strategic objectives, albeit with recognized costs to domestic consumers and businesses.
