The Trump administration announced Friday that, beginning on 1 Feb., imports from Canada, Mexico, and China will be subject to new tariffs – 25% in the case of Canada and Mexico, and 10% for China.
The move is a stunning blow for America’s top three trade partners and two of its closest allies. Total US turnover with Canada and Mexico each year is about $1.8 trillion, three times the volume with China. The US trade deficit with China is its largest, nearing $300 billion last year, followed by Mexico at more than $160 billion. The deficit with Canada is about $60 billion.
Major imports from Canada and Mexico include automobiles and auto parts. Oil is the single largest US import from Canada (why? See here). The US also imports a sizable volume of agricultural products from Mexico. Imports from China, meanwhile, include a raft of machinery products, electronics, and toys.
Details are scarce: The precise mechanisms for the tariffs, as well as any possible exemptions, will be made public on Saturday, according to the White House. Trump has said he is mulling a carveout for Canadian oil.
What is the aim? Also not entirely clear. Trump believes in the power of tariffs to rebalance trade and create more US manufacturing jobs.During his first term, he revised the 1994 NAFTA free trade agreement with Mexico and Canada, addressing loopholes concerning the national origin of auto components and labor protections. This resulted in the United States-Mexico-Canada Agreement, which sanctions would undermine.
China, meanwhile, is already under a welter of tariffs imposed by both Trump’s first administration and the Biden administration. These focus on a range of advanced technology, natural resources, EV-related, and medical products.
Trump has recently blamed all three countries for not doing more to stop the flow of undocumented migrants and illegal drugs into the US, but he hasn’t laid out specific benchmarks for removing the new tariffs.
What will the effect be? Chaotic and potentially expensive, at least in the short term. Complex North American supply chains, particularly in the auto industry, could be tangled. As foreign companies pass on the cost of tariffs to consumers, Americans could see higher prices at the pump and the register for a range of goods.
Retaliation. Rather than turn the other cheek, Canada and Mexico are likely to slap back, imposing retaliatory tariffs of their own, which could harm American export industries.
Well, it’s on. For months, Trump has promised a staggering turn towards protectionism. Now he’s doing it, effectively throwing a hand grenade into the largest trading relationships in the world. Buckle up.
