TRUMP TARIFF – ECONOMY

TRUMP TARIFF – ECONOMY

NEWS: President-elect Donald Trump pledged that soon after taking office he will slap steep tariffs on Mexico and Canada, two of America’s closest allies, as well as China.

WHAT’S IN THE NEWS?

Trump’s Pledge on Tariffs

  • Tariffs on Key Trading Partners:
    • President-elect Donald Trump plans to impose 25% tariffs on Mexico and Canada.
    • An additional 10% tariff will be imposed on China, potentially on top of existing tariffs.
    • Tariffs aim to address drug trafficking, specifically fentanyl, and illegal migration.

    • Implications for Trade Agreements

      • USMCA at Risk:

      ·         Tariffs could undermine the US-Mexico-Canada Agreement (USMCA), a deal Trump himself negotiated.

      ·         In 2022, USMCA-facilitated trade totaled $1.8 trillion.

      ·         Trump expressed intentions to renegotiate USMCA, leveraging a review clause available in 2026.

      Economic and Legal Concerns

      • Authority to Impose Tariffs:
        • U.S. laws allow presidents to impose tariffs, but typically require an economic, commercial, or national security justification.
        • It is unclear under which authority Trump plans to implement these measures.
      • Economic Impact:
        • Economists warn of higher consumer prices.
        • U.S. goods imported from Mexico, Canada, and China account for 42% of total imports.
        • Industries like auto manufacturing and oil (major exports from Canada) could face disruptions.

      Impact on Mexico and Canada

      • Mexico’s Response and Past Experience:
        • Mexico's peso weakened following Trump’s announcements.
        • In 2019, a similar tariff threat led Mexico to deploy its National Guard to curb migration, avoiding tariffs.
        • Current migrant caravans are increasing, with 6 caravans leaving southern Mexico recently.
      • Canada’s Economic Ties:
        • Canada supplies about 60% of U.S. oil imports and 80% of its exports go to the U.S.
        • Canadian officials emphasize the mutual benefits of trade, highlighting a $900 billion relationship.
        • A lobbying team is being deployed to protect Canadian interests.

      Impact on U.S.-China Trade Relations

      • China’s Response:

      ·         Chinese embassy described U.S.-China trade as mutually beneficial, warning against a trade war.

      ·         Existing U.S. tariffs have already reduced China’s share in certain product categories like laptops and semiconductors.

      • Role in Fentanyl Crisis:

      ·         China supplies precursor chemicals for fentanyl production in Mexico.

      ·         Despite U.S. criticism, China recently imposed new restrictions on precursor production.

      Domestic Reactions

      • Support for Tariffs:

      ·         Groups like Coalition for a Prosperous America support tariffs as they align with Trump’s campaign agenda.

      ·         Figures like Elon Musk praised tariffs for addressing illegal migration and drug trafficking.

      • Criticism of Tariffs:

      ·         Critics, including Senator Brian Schatz, argue tariffs will lead to higher consumer costs, impacting goods sold at retailers like Walmart and Costco.

      Potential Economic Consequences

      • Price Increases for Consumers:
        • Higher tariffs likely to increase prices on imports like smartphones, toys, and machinery.
      • Impact on Global Trade Dynamics:
        • Canada, Mexico, and China are the U.S.’s top three suppliers, contributing significantly to global trade flows.
        • Retaliatory measures could escalate trade tensions and disrupt supply chains.

      Broader Migration and Drug Trafficking Context

      • Migration Surge:
        • Migrant caravans are reportedly accelerating movements toward the U.S. border ahead of Trump’s inauguration.
      • Fentanyl Crisis:
        • Efforts to curb fentanyl trafficking have had limited success despite stricter U.S. and Chinese measures.
        • Preliminary U.S. data indicates a slight reduction in drug deaths in recent years.

      Global and Strategic Reactions

      • China’s Trade Position:
        • U.S. remains a crucial market for China, despite declining import shares.
      • Canada’s Diplomatic Efforts:
        • Canadian leaders seek to mitigate economic fallout through diplomacy with U.S. policymakers.
      • Future Trade Strategy:
        • Trump’s tariff policies reflect a broader strategy of economic nationalism aimed at securing domestic jobs and addressing security concerns.