Trump’s Tariffs on Canada, Mexico, and China
The newly elected U.S. President, Donald Trump, announced during his campaign and after taking office that he would implement stricter tariffs on Canada, Mexico, and China. These threats have proven to be accurate, and Trump has imposed a 25% tariff on goods from Canada and Mexico unless the governments of these two countries stop the influx of illegal immigrants and fentanyl drug trafficking into the U.S. China, Mexico, and Canada are the three largest trading partners of the U.S., and the tariffs could severely affect the economies of these countries while also raising consumer prices in the U.S. Previously, Colombia agreed to the conditions set by President Trump regarding the acceptance of deported migrants, and as a result, the White House decided to suspend previously announced sanctions on Bogotá.
What does this mean?
The latest tariffs could cause significant damage to the economies of Canada and Mexico, as both countries heavily rely on trade with the U.S. Currently, the U.S. buys 83% of Mexico’s total exports, as well as 76% of Canada’s exports. Canada sells large quantities of oil and machinery to the U.S., and the 25% tariffs could, according to some expert estimates, reduce its GDP by 7.5% over the next five years.
On the other hand, due to the tariffs imposed on Mexico, companies that have opened car manufacturing plants there could relatively easily shift production to the home countries of those manufacturers. Tariffs could, according to forecasts, reduce Mexico's GDP by 12.5% over five years, which would be a huge loss for this country.
China has stated it will take appropriate countermeasures to protect its interests, condemning Washington's decision. The Chinese have announced a lawsuit with the World Trade Organization (WTO), claiming that the unilateral imposition of tariffs by the U.S. seriously violates WTO rules. According to Beijing, the tariffs not only fail to resolve the U.S.'s internal problems but also undermine normal economic and trade cooperation.
Who will the tariffs affect?
The new tariffs imposed by the U.S. could be "devastating" for workers, especially Mexican workers, as around five million jobs in the U.S. depend on trade between the U.S. and Mexico. This was confirmed by President Trump, who emphasized the importance of tariffs, protection, and job creation in the US as a way to boost the American economy and increase tax revenue. According to him, American workers will no longer have to worry about job losses due to foreign countries, and instead, foreign countries will worry about the loss of their jobs due to America.
Additionally, U.S. companies pay tariffs to the government for imports from abroad, and the consequences of higher tariffs can be felt by importers, foreign suppliers, and consumers. Imposing high additional tariffs presents a risk of recession both for Canada and Mexico, as well as for the U.S. According to expert estimates, Canada and Mexico will lose around 3.6% and 2% of their real GDP, respectively, while the U.S. could suffer a loss of 0.3% of its real GDP.
As for China, the tariffs will contribute to slowing China’s economic growth because they increase the cost of Chinese exports to the U.S. and disrupt trade flows. This can lead to reduced demand for Chinese goods, affecting manufacturers, exporters, and workers. Current tariffs and trade tensions could also create uncertainty in global financial markets. Investors often respond to this uncertainty by pulling back their investments, which can lead to volatility in stock markets and changes in currency values.
Global Consequences
New tariffs do not only affect the countries directly impacted by them but can also have a domino effect on the global economy. Due to reduced trade between the U.S. and its largest trading partners, there could be a decrease in international production, leading to further demand drops and slowing global growth. Many international companies will likely begin adjusting their business strategies, moving production from China, Mexico, and Canada to other countries like Vietnam and India to avoid these high tariffs. This could lead to changes in global supply chains but would also incur additional costs in investing in new markets and adjusting production capacities.
For the U.S., however, the long-term benefits of raising tariffs are not guaranteed. While tariffs can temporarily protect American workers and increase production in certain industries, they can also lead to higher prices for consumers. Furthermore, tariffs will trigger retaliatory measures from other countries, which will threaten U.S. exports and reduce the competitiveness of American products in global markets. The Canadian government will impose tariffs of 25% on American goods worth $155 billion, while China has announced a lawsuit against the U.S.
Overall, the policy of imposing tariffs could be beneficial in the short term for protecting domestic production, but in the long term, it could create additional economic problems, reduce global trade, and disrupt the balance in international relations.