Trump's tariff gamble: Economic revival or trade war risk?

US President Donald Trump has made tariffs a cornerstone of his economic policy, arguing they will boost American manufacturing and generate massive government revenue. However, critics warn that the tariffs could drive inflation, disrupt industries, and spark a damaging trade war with major partners like Canada, Mexico, and China.

What are tariffs? Tariffs are fees that businesses pay when importing foreign goods. These levies can either be absorbed by the importing company, passed on to consumers through higher prices, or prompt businesses to seek domestic alternatives.

Governments impose tariffs to generate revenue and protect domestic industries by making foreign products less competitive. However, they also risk triggering retaliatory measures from trade partners, which can harm exporters.

Trump’s latest tariff move Since returning to office, Trump has imposed fresh tariffs on Canada, Mexico, and China, along with new duties on steel and aluminum imports. On his so-called "Liberation Day" this Wednesday, he is expected to unveil additional tariffs on key imports.

Senate Republicans are facing pressure to support Trump’s move, despite concerns about economic fallout. A Democratic-led resolution seeking to nullify the presidential emergency declaration on fentanyl—used to justify tariffs on Canada—is set for a Senate vote. Several GOP senators, including Lisa Murkowski, Susan Collins, Mitch McConnell, and Rand Paul, are reportedly leaning toward supporting the resolution.

Trump urged Republicans to oppose the measure, saying in a social media post that they should “get on the Republican bandwagon, for a change, and fight the Democrats’ wild and flagrant push to not penalize Canada for the sale, into our Country, of large amounts of Fentanyl.”

The case for tariffs Trump and his supporters argue that tariffs will:

• Revive American manufacturing by making US-made products more attractive.
  
  
• Generate government revenue—the White House claims new tariffs could bring in over $6 trillion over the next decade ($600 billion annually).
  
  
• Pressure foreign exporters to lower prices, reducing the burden on US companies.
  
  
• Demonstrate strength in trade negotiations, giving Trump leverage to secure better deals.
  
  

Trump points to historical examples like the 1960s "chicken tax", which helped North American pickup truck manufacturing thrive after the US imposed a 25% tariff on imported trucks in response to European poultry tariffs.

The risks and criticisms Economists and trade experts warn that tariffs come with significant risks:

• Inflationary Pressure:
  
  
  • Trump’s 25% auto tariffs could raise car prices by $5,000 to $10,000, according to Wedbush analysts.
    
    
  • Even US automakers rely on foreign parts—up to 50% of an average car’s components come from abroad.
    
    
  • Construction material prices could rise by 9%, and appliances by 15%, according to Nationwide chief economist Kathy Bostjancic.
    
    
• Retaliation from Trade Partners :
  
  
  • Trump’s previous tariffs led to $27 billion in US agricultural export losses between mid-2018 and late-2019 due to countermeasures from affected countries.
    
    
• Economic Slowdown & Market Volatility:
  
  
  • The unpredictable nature of Trump’s tariff decisions has caused financial market instability.
    
    
  • North Dakota Senator Kevin Cramer warned that businesses are worried about supply chain disruptions.
    
    
• Increased Costs for Consumers:
  
  
  • The Tax Foundation estimates that past tariff hikes have increased tax collections by $200–$300 per US household annually, excluding indirect costs such as job losses or reduced wages.
    
    

Global reaction: Europe watching closely The European Central Bank (ECB) is closely monitoring the situation but believes US tariffs won't derail Europe’s disinflation. French central bank chief François Villeroy de Galhau stated Wednesday that inflation in the eurozone has slowed to 2.2%, and the ECB may still cut interest rates soon.

What’s next? The Senate vote on the Democratic resolution could test Republican unity. Meanwhile, Trump’s tariff plan is set to be officially announced at 8:00 PM GMT Wednesday. Markets, businesses, and international leaders are bracing for the impact.