New US tariffs set at 10% have come into effect, days after the country’s Supreme Court blocked the bulk of President Donald Trump’s sweeping import taxes. The shock move came as a major blow to the president’s determination to rebalance US trade and bring manufacturing back home.
For more than 30 years, the United States has been importing substantially more goods and services from the rest of the world than it exports.
In many ways, this trade deficit is a good problem to have. US citizens are among the richest in the world. Every time citizens or governments buy more than they sell, someone must pay the difference. In the US, this deficit is financed by foreign investments and public debt. The US owes the rest of the world US$27.61 trillion (£20.5 trillion) more than it is owed back, a unique position.
Foreign investors are not doing it out of generosity: those US investments have been doing very well, and many countries have been able to sustain export-led industries to a large extent thanks to US deficits. The AI investment boom, for instance, is driven by investors from all over the world betting on the success of a handful of US-based companies.
But cheap imports from the rest of the world have a dark side. They played a major role in the reduction of manufacturing jobs and the social and political consequences – such as the surge of left and rightwing populist movements – that followed. In 2000, 17 million Americans were employed in manufacturing; there are only 13 million now.
The stubborn US trade deficit
At least since the first term of President Barack Obama, the deficit has been seen as a major problem.
Obama’s objective was to encourage US exports by making it easier to sell to foreign markets. But he also pursued a policy of energy independence – the “all of the above” strategy of encouraging fracking, oil extraction and investment in renewables. This strategy has been a tremendous success, to the point where the US now exports more energy than it imports.
But it did not end trade deficits.
Joe Biden took over in the White House and launched two vast programmes aimed at restoring manufacturing jobs. The goal was to use the US position as the global investment destination to steer cash towards states such as Ohio, Indiana or Michigan, which were traditionally reliant on factory jobs.
This led to a boom in green energy and semiconductors. But as it also made Americans richer, they imported more and it did not end trade deficits.
Trump’s two mandates took a more direct approach: taxing imported goods. The first term was haphazard, and tariff wars with China led to higher consumer prices while failing to deliver the political gains he expected.
EPA/JIM LO SCALZO / POOL
But the second mandate has so far been much more organised, starting with “liberation day”, when he announced he would tax US imports in proportion to the bilateral trade deficit with each country.
Just like those of Obama and Biden, Trump’s strategy did not reduce the deficit – in fact it was higher in 2025 than in 2024. But it has so far been a major success in bullying traditional partners into submission with the threat of tariffs.
Perhaps the most consequential moment was the collective decision of members of the Organisation for Economic Cooperation and Development (OECD) to carve out a US exception to the global minimum tax on multinational companies. This international effort, intended to make the likes of Amazon and Apple pay a fair amount of tax, was designed to apply to the entire world, even without US approval.
The theoretical logic was flawless. If any country does not tax at least 15% of the profit located on its territory, other signatories can tax it instead. But America’s traditional economic partners in the OECD feared Trump enough to grant the US an exemption. It will be the only country allowed to practise tax competition.
As the US Supreme Court has now ruled most of Trump’s tariffs illegal, this may be a turning point in his second presidency.
Trump has not backed down from his claims, but may no longer be able to act on the stroke of a pen, and could be forced to tax all trading partners at a similar rate.
This is undoubtedly great news for countries like Canada, which chose not to bow down to threats, or China, which managed to bring Trump to the negotiating table by systematically retaliating against his threats.
In contrast, the European Union agreed to a deal allowing the US to tax EU imports but not the other way around. As the UK exports far fewer goods to the US than the EU does, it accepted a slightly preferential deal. But pledges to invest billions in the UK as part of the package were cancelled just days after they were announced.
The short-term benefits of signing those asymmetric deals were obvious – after all, no one wins a trade war and tariffs are mostly a tax on the consumers of the importing country. But the long-term reputational costs will be much harder to manage. In an increasingly multipolar and uncertain world, European nations have sent a clear message that they are easy to manipulate with a bit of projected strength.
