Trump’s Tariff War: Mixed Results After 18 Months of Trade Measures

Tariff-led efforts to reduce the US trade deficit show limited overall gains despite changes in bilateral trade balances

October 2026 marks a year-and-a-half since US President Donald Trump declared April 2, 2025, as Liberation Day and introduced a tariff-based approach aimed at addressing what his administration described as unfair trading practices. While the measures have contributed to lower US goods trade deficits with several major trading partners, the overall reduction has been limited, with higher deficits recorded with Taiwan, Vietnam, Mexico, Malaysia and South Korea.

Tariff Policy Takes a Shifting Course

Trump’s Liberation Day announcement was based on the argument that major US trading partners had used unfair practices to protect their domestic markets while gaining access to the US market. The resulting bilateral trade deficits, however, were described as the outcome of a loss of trade competitiveness.

Under the policy announced on April 2, 2025, the Trump administration introduced tariffs under the International Emergency Economic Powers Act (IEEPA), with the stated objective of restoring US supremacy in global trade.

The initial measure imposed a baseline tariff of 10 per cent on all imports into the US, with some minor exceptions. It was accompanied by the threat of additional country-specific reciprocal tariffs linked to the US bilateral trade deficit with individual countries.

The level of the additional tariff was to depend on the willingness of individual countries to negotiate agreements involving trade and investment concessions in exchange for lower-than-threatened, across-the-board tariffs.

A Tortuous Policy Path

Over the following year-and-a-half, the tariff measures underwent repeated changes in both their magnitude and duration. In February 2026, the US Supreme Court struck down tariffs imposed under the IIEPA on the grounds that they breached limits on Presidential authority.

The administration subsequently relied on provisions permitting tariffs in response to national security threats and unfair practices, including intellectual property theft and the use of forced labour to reduce costs.

These measures were combined with penalties on transshipment exports to the US from countries hosting foreign firms seeking to avoid tariffs imposed on exports from their countries of origin. Chinese firms located in Vietnam were cited as an example. Secondary sanctions were also imposed on countries importing crude from Russia.

Although strategic objectives, including ending trade in Fentanyl, were frequently cited, the central justification for the tariff measures remained the need to significantly reduce the large US trade deficit.

Trade Deficit Shows Some Reduction

The results over the last year-and-a-half have been mixed.

A preliminary comparison suggests some reduction in the US goods trade deficit. The deficit stood at $4.6 billion in the first quarter of 2025, before Liberation Day, while it remained below $3 billion in every subsequent quarter through the second quarter of 2026.

However, this comparison is affected by an unusually large increase in imports during the first quarter of 2025. Imports during that quarter increased by more than 25 per cent compared with the corresponding quarter of the previous year, contributing to the rise in the trade deficit.

The increase may have been linked to orders placed in anticipation of higher tariffs. When this effect is taken into account, the overall reduction in the trade deficit appears less significant.

Taiwan and Vietnam See Major Increases

The distribution of changes across individual trading partners also shows a different picture.

Between the first quarter of 2025 and the second quarter of 2026, only five countries recorded a significant increase in their bilateral US trade deficit: Taiwan, Vietnam, Mexico, Malaysia and South Korea.

Among these, Taiwan and Vietnam accounted for the largest increases in their trade surpluses with the US during the year-and-a-half following Liberation Day.

At the same time, the US recorded either a decline in its goods trade deficit, a shift from bilateral deficits to surpluses, or an increase in existing surpluses with most other major trading partners, including China. These changes contributed to the reduction in the overall US trade deficit.

Machinery and Electrical Equipment Drive Deficits

Despite the improvement in bilateral trade balances with most major partners, the overall gains from the tariff measures have remained limited.

The changes in trade with Taiwan and Vietnam provide an indication of the factors behind this outcome. In both countries, machinery and mechanical appliances, along with electrical machinery and equipment, accounted for the bulk of exports to the US.

During the second quarter of 2026, these two sectors represented more than 90 per cent of US imports from Taiwan and more than 70 per cent of US imports from Vietnam.

Taiwan’s export composition reflects its established role as a supplier of components and parts to the US, particularly its position as a major producer of semiconductors. US dependence on semiconductor imports, combined with the continuing increase in data centre investments associated with artificial intelligence, has supported demand in these sectors.

Vietnam Emerges as an Export Platform

Vietnam presents a different pattern. Despite being one of the principal targets of US tariff measures, US imports from Vietnam increased from $41.9 billion in the first quarter of 2025 to $66.5 billion in the second quarter of 2026.

The increase was not primarily driven by traditional labour-intensive exports such as garments, footwear and furniture. These products represented just 11.5 per cent of US imports from Vietnam in the second quarter of 2026.

Instead, the increase was led by machinery and equipment, including electrical equipment.

Foreign companies from China, Korea and Japan have been using Vietnam as an export platform for final-stage production destined for US markets. The exceptional transshipment tariffs announced by Trump have proved more difficult to implement than measures aimed at limiting imports from traditional trading partners.

The scale of exports through Vietnam has been sufficient to increase the US bilateral goods trade deficit with the country.

Two Factors Behind the Limited Overall Impact

Two factors appear central to the limited overall impact of the tariff measures, despite reduced imports and lower US trade deficits with most countries.

The first is US dependence on the international semiconductor supply chain during a period marked by a significant increase in data centre investment associated with artificial intelligence.

The second is the continued reliance of the US and its transnational companies on offshore production of equipment for both investment and consumption.

Vietnam currently remains a leading example of this continuing trend of globalisation.