Trump still betting on tariffs to shrink America’s trade deficit

In his latest missive, the US President has threatened 100% duties on Russia and its trading partners, which includes some big American allies. It’s ‘stick-or-twist’ time for the White House.

Angela Weiss/AFP

Stock markets are reacting to an uptick in US inflation, suggesting that President Donald Trump's tariffs are beginning to feed into the American economy.

Trump still betting on tariffs to shrink America’s trade deficit

Mohamed Sharki

last update on 17 Jul 2025

After six months, US President Donald Trump’s trade wars show no signs of slowing down, with his ‘America First’ doctrine showing little distinction between friend or foe. In his latest swipe, Trump threatened to slap Russia and its key trading partners with “very severe tariffs” if the war in Ukraine is not resolved within 50 days.

Analysts warn that the world economy may be heading into a new deadlock, with fresh tariffs set to take effect in early August, but Trump appears to be standing firm and linking the latest escalation to stalled peace-making efforts. “I’m extremely disappointed in President Vladimir Putin, he said. “I thought we’d have a deal two months ago. If there’s no deal in 50 days, it’s simple: we’ll impose 100% tariffs.”

So-called secondary tariffs, imposed on those who trade with the sanctioned entity, have long been mooted but never enacted, so this represents a step up in Trump’s efforts to get Putin to end the war. Russia’s top trading partners include China, India, Belarus, Kazakhstan, Armenia, Vietnam, Serbia and North Korea.

Beyond Ukraine, leaks suggest that a wide range of countries could face tariffs ranging from 10 to 50%, with a default rate of 30% in most cases. Targets reportedly include the European Union (EU), Canada, Mexico, Brazil, Japan, several Arab states, South-East Asian countries, and parts of Latin America and Africa. Trump has also suggested placing high tariffs on key raw materials like copper, aluminium, steel and iron.

Widening trade deficit

Figures from Trading Economics show that the US posted a net trade deficit of $71.5bn in May, with gross deficit figures nearing $87bn. Exports dropped by 4% to $279bn, down from $290.5bn in April. Trade imbalances with major partners remained stark: $22.5bn with the EU, $15bn with Vietnam, $14bn with China, and $13.5bn with Mexico.

Pavel Bednyakov/AP — A news ticker installed on the TASS news agency building reports on US President Donald Trump threatening Russia with new tariffs, in Moscow on July 14, 2025.

According to the US Congressional Committee on Foreign Trade, America’s goods trade deficit for the 12-month period ending April 2025 stood at $1.39tn. While the country posted a $308.8bn surplus in services, the net trade deficit still hovered around the $1tn mark, the equivalent of the Pentagon’s annual budget. Projections suggest that federal debt will reach a whopping $36tn by the end of 2025—equivalent to nearly a third of global GDP.

The resulting pressure is already visible in US financial markets, where investor confidence has dipped, amid warnings that the EU will retaliate with its own tariffs on American goods. In the first quarter of this year, US imports surged to $1tn, up $158bn from the same period last year. Most of this increase came from consumer goods, pharmaceuticals, vehicles and industrial equipment.

Projections suggest that US federal debt will reach a whopping $36tn by the end of 2025—equivalent to nearly a third of global GDP

Exports rose by only $21bn to $539bn, driven primarily by sales of aircraft, weapons, and technology. The US Bureau of Economic Analysis noted a 44.3% jump in the current account deficit, which reached $450bn in the first quarter of this year, up from $312bn in the final quarter of 2024.

Competitiveness problem

The figures point to deeper issues than just tariffs. America's export weakness is tied to waning competitiveness. Though it remains the largest economy, the US is neither the world's top manufacturer (China is), nor its largest consumer market (Europe), nor its most productive (Japan, South Korea and other Asian economies outperform it).

According to estimates from the US Trade Office, total American trade flows could exceed $8tn by the end of 2025: $4.8tn in imports and $3.2tn in exports, roughly a quarter of global trade in goods and services. Yet, if the gross trade deficit hits a projected $1.6tn as feared, the tariff strategy may prove economically futile.

The combination of high deficits and elevated interest on US Treasury bonds risks crowding out global development finance, especially for emerging economies. Domestically, it could undermine consumer power, squeeze the middle-class, and fuel poverty, posing long-term threats to social cohesion.

Ties with Europe

A 2024 report by the European Commission revealed that EU-US trade reached $1.9tn, accounting for 30% of global merchandise trade and 43% of the global economy. The EU imported $390.7bn worth of American goods and services, while exporting $620.8bn, making the US its top export destination at 20.6% of total exports. Brussels recorded a trade deficit with China, which supplied 21.3% of the EU's external purchases.

Brendan Smialowski/AP — US President Donald Trump meets Denmark's Foreign Minister Lars Lokke Rasmussen at the start of the NATO summit in The Hague, Netherlands, June 25, 2025.

European sources describe the current transatlantic relationship as unusually frosty and in its worst state since World War II, with disagreements ranging from trade to defence, especially regarding NATO funding and support for Ukraine. Reports suggest that Trump prefers to negotiate first with individual economies (like India) before engaging in complex talks with the EU, whose diverse membership often leads to fragmented negotiating positions.

NATO fractures

At the NATO summit in The Hague, several European nations—including Spain—opposed a US idea to increase defence contributions to 5% of each member's GDP. Madrid, whose defence spending is among NATO's lowest as a proportion of its GDP, called the measure detrimental to domestic social investment, including healthcare, education and development. Yet NATO's total costs are currently estimated at $1.5tn, and the US foots nearly two-thirds of the bill.

Germany and European Commission President Ursula von der Leyen are pushing for a broader trade agreement that shields European interests, arguing that a proposed 30% tariff on German car exports would strike at the heart of a century-old industrial sector. Germany exported $163bn worth of goods to the US in 2024, followed by Ireland with $103bn. The top three exporters to the US were Mexico ($510bn), China ($462bn) and Canada ($422bn).

Vietnam breakthrough

In a notable development, Trump's administration reached a trade agreement with Vietnam eliminating duties on US exports, while imposing tariffs of 20-40% on Vietnamese imports depending on their country-of-origin classification. The deal is seen as a breakthrough in South-East Asia, a region with over 647 million people and a combined GDP of $4tn.

Washington suspects that China often uses neighbouring states as back-doors to circumvent US tariffs. According to US Commerce Department data, bilateral trade with Vietnam soared from under $3bn in 2001 to $150bn in 2024, following the 1994 lifting of the embargo and a 2001 trade pact.

The two nations have since upgraded ties to a 'comprehensive strategic partnership.' Today, the US accounts for a third of Vietnam's exports, including garments, electronics and machinery. Vietnam posted a trade surplus of $123.5bn with the US last year, and a further $39bn in the first quarter of 2025. If the Vietnam deal shows Trump anything, it is that twisting can sometimes be better than sticking.

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