US tariff policies have added another layer of complexity to the global economic landscape.

On February 24, US President Donald Trump announced that comprehensive tariffs on imports from Canada and Mexico "will proceed" once the current delays to their implementation end in early March.

Meanwhile, other countries are swiftly taking action to avoid similar measures on their exports. South Korea's Industry Minister, Ahn Duk-geun, was reportedly travelling to Washington to seek an exemption from US steel tariffs and to explore opportunities for increased collaboration in the energy and shipbuilding sectors.

Trump's lifelong fixation on import tariffs is now reflected in his eagerness to apply tariff policies for different purposes, some unrelated to trade. There are tensions between the economic goals pursued using tariffs, indicating that something will have to give.

Tariff drivers

GlobalData Strategic Intelligence has identified three distinct motives underlying the drive to increase tariffs.

The first is reindustrialising the US, with the aim of reviving mid-wage, mid-skill jobs associated with manufacturing lost to offshoring. This is seen as a root cause of the country's socio-economic ills.

The second motive is fiscal revenue, with tariff proceeds to be used to offset tax cuts planned to come into force in fiscal year 2025-2026.

The third motive is extracting concessions from trading partners, with the aim to balance unfair trade and/or change foreign countries' non-trade policies.

These tariffs, primarily aimed at protecting domestic industries, have far-reaching implications for several countries and sectors, with several sectors being impacted. The US tariffs have a profound impact on countries with which it has substantial trade deficits. Notably, Canada, Mexico, Europe, and China are at the forefront of this economic tug-of-war.

For the pharmaceutical sector, unilateral US tariffs could provoke EU counter tariffs, leading to a cycle of retaliation, although a negotiated deal offering concessions to increase US exports to the EU could mitigate this risk.

Amid this uncertainty, some EU pharmaceutical companies, especially those highly exposed to US tariffs, may scale back investment projects, such as R&D spending. In 2023, the US remained the EU's largest trading partner for medicinal and pharmaceutical products, with nearly one-third of all EU exports in this sector directed to the US. The potential approval of the US Biosecure Act in 2025 could pressure US drug manufacturers to reshore production facilities to ensure supply chain security and reduce dependency on foreign sources.

The Light Vehicles (LVs) sector is another area that has been significantly affected by tariffs.

The US is a major market for European LV exports, accounting for around a third of all exports. The proposed tariffs would cause vehicle prices to rise and choices to fall, putting significant topline volume at risk. The tariff would not only impact import brands but also the domestic industry given the tariff would include parts imported to the US for final assembly. It is estimated that 25% of vehicle parts used in the US are imported. The 2025 impact range is estimated to be a decline of between -2 and -6%.

Also impacting the automotive sector is a likely rollback in the Inflation Reduction Act (IRA) credits and emission regulations could mean a slower EV transition and fewer or delayed EV launches in 2026-2028. Autonomous Vehicle (AV) development could get fast-tracked under Trump, which is somewhat counter to the slower EV transition.

Construction impact

The construction sector is also feeling the pinch of these tariffs. As tariffs instigate cost-push inflation, constructors absorb increased costs, decreasing the feasibility, profitability, and subsequent volume of building permits granted. Elevated input prices are passed onto the consumer, inflating construction market prices, and the affordability of new construction builds. Fractured supply chains nurture new trade relations, as contractors look to source building materials more regionally/locally.

For the power sector, President Trump's executive orders on 20 January, signalled a significant shift in US clean energy and climate policy. These orders promote the advancement of fossil fuels, nuclear power, geothermal energy, and other technologies, but aim to restrict the growth of wind power and the adoption of electric vehicles.

These orders are expected to have significant repercussions on the power sector, potentially altering the cost dynamics within the industry.

While the aim of the Trump administration’s tariffs is to protect domestic industries, the ripple effects are felt globally, disrupting trade relations and economic dynamics. The Light Vehicles and construction sectors are particularly impacted, facing potential declines and disruptions. As the world navigates this complex economic landscape, it will have to come to terms with the long-term effects of tariffs.