The Effect of U.S.A’s Tariffs on the Dollar

Tariffs are a type of trade restriction imposed by the government of a nation that places a custom duty or tax on a good that is being imported. Tariffs play a vital role in global trade, as it influences domestic and global prices of products, and global trade can influence exchange rates. In light of recent news, regarding the Trump Administration’s imposition of tariffs on various imports, countries such as Canada, China, and Mexico have been levied a 25% tariff.

This imposition aimed to protect domestic industries, but have had complicated effects on the U.S. Dollar. Tariffs increase the costs of imported goods, reducing a trade deficit and boost demand for the dollar. However, a heavy tariff, such as the 25% levied to key importers such as Canada and China place immense pressure on foreign direct investment. This can slow down economic growth and potentially weaken the dollar, as investors can invest in other currencies such as the Euro due to price volatility caused by the tariffs.

For Forex traders, however, the tariffs implemented by the United States of America presents opportunities such as short-term increment in the dollar value, due to an increase in demand for U.S. goods. Currency pairs, such as USD/CAD can create opportunities for traders to further invest in the U.S. Dollar, as nations such as Canada and Mexico face tariff pressures, threatening their own currencies.

On the other hand, investor confidence may drop over the long run, or even inflation could play a role in influencing the value of the $USD. Countries can also place retaliatory tariffs against the USA, like what China did, sparking a tariff war, that gave the opportunity for other currencies to strengthen, such as the Euro, who could absorb trade redirected from the USA.

Bibliography

1. https://www.cnn.com/2025/06/25/investing/us-dollar-decline-currency-markets

2. https://www.piie.com/blogs/realtime-economics/2025/trumps-tariffs-damage-us-economy-more-if-they-drive-investors-away

3. https://www.wto.org/english/res_e/reser_e/ersd201117_e.htm