The Trump tariff rebuild continues and trade wars are back. What does it mean for startups?
Headline-grabbing tariffs have startups paying attention as the administration takes steps to reconstruct the sweeping tariff regime struck down by the Supreme Court and ignites trade conflict with top trading partners. The Court’s February decision had led to something of a lull in new tariff pronouncements as the administration undertook procedural steps to impose tariffs with other—and potentially more durable—statutory authorities. With the administration imposing some tariffs under new authorities in July, still more potential tariffs to come, and tit-for-tat trade retaliation with Canada to perhaps stretch on for months, startups are bracing for the return of heights of uncertainty and the difficult trading environment that colored much of last year.
Upon entering office, the Trump administration quickly staked out a tariff-first trade approach, claiming emergency authorities to impose tariffs on goods from close trading partners—like Canada and Mexico—and set up a global tariff regime. The pronouncements rattled markets and the on-again, off-again tariffs made it difficult for businesses to plan for investments and growth. Startups described the policy as “chaotic” and “a distraction,” that led to steep cost spikes, unanticipated tariff bills, product delays, reduced research and development, changes to hiring plans, and a tougher time trading abroad.
After a winding legal battle, in February, the Supreme Court struck down tariffs the administration had imposed using a national emergency statute. Determined to resurrect their tariff regime, the administration invoked a different—and still legally dubious—authority to impose a new 10 percent global tariff via executive order. That never-before-used authority, Section 122 of the Trade Act of 1974, allows tariffs of up to 15 percent for 150 days—without needing congressional approval—to address a “large and serious” balance-of-payments deficit. Litigation over those tariffs outlived their 150-day lifetime. Hours before they expired, the administration imposed a new round of tariffs under section 301 of the Trade Act of 1974 with the pretense of discouraging forced labor. The varied efforts to maintain a global tariff regime continue to foster unease from startups, especially in light of continued tariff threats.
The uncertainty is here to stay. Similar to the 301 tariffs imposed on grounds of pursuing the elimination of forced labor, an additional investigation into U.S. trade partners’ ‘excess structural capacity’ hangs as potential–and probable–justification for future tariffs that will likely stack on the ‘forced labor’ tariffs. Additionally, negotiations over the United States-Mexico-Canada Agreement (USMCA)—the United States’ trade agreement with its two largest trading partners—could eventually see it lapse if the U.S. does not agree to extend it. Trump called the deal “not important” and said “I don’t care” when asked if it should be renewed last month.
Far from unimportant, the trilateral trade relationship represents nearly $2 trillion, and fostered significant growth in digital trade. But it was cast even further into doubt when 50 percent tariffs on billions of dollars worth of Canadian goods were allowed to go into effect in August. Those tariffs—imposed using a depression-era law—were nearly avoided, and even delayed, with a reported deal announced, but negotiations fell apart at the last moment. Canada, for its part, has vowed retaliation, which Trump has promised to meet. The threat of a spiraling trade conflict, with limited off ramps (the Canadian’s retaliation is set out a few weeks, presumably to give space for a landing zone) further compound the sense of unease around an important market for startups.
The tariffs and tariff threats have yielded some beneficial results, even if it’s unclear how much staying power they will have. Last June, Canada repealed its discriminatory digital services tax following earlier threats from Trump. The administration has also reached a handful of executive agreements they call Agreements on Reciprocal Trade (ART), which include key digital trade provisions, including around ensuring the free flow of data across borders. They also used tariff-underpinned deals to build support for making permanent the World Trade Organization’s (WTO) Moratorium on customs duties on electronic transmissions. Yet that effort ultimately was derailed by Brazil, a frequent tariff target.
Plenty of countries have reached for retaliation instead of cooperation. China’s response to U.S. tariffs was to restrict access to critical tech inputs, like critical minerals. Politically significant products and leading industries are top targets for retaliation, meaning U.S. tech could find itself in the crosshairs of retaliatory measures, even if those measures aren’t tariffs. Overall, the administration’s approach has weakened goodwill with the U.S.’ trading partners and led to efforts by other countries to make deals without the U.S., further risking U.S. startups’ long-term international success.
Stable and predictable trade policy is essential for startups to confidently enter foreign markets, price products, hire workers, and attract investment. To ensure the prosperity of technological innovation and the growth of U.S. startups, trade policy must shift from tariff-first, negotiate-later to a trade policy focused on bolstering global opportunities for the startups driving the country’s innovation.