US President-elect Donald Trump’s threats to impose damaging tariffs on Canada, Mexico and China may ultimately be an opening bid to try to use the power of the US market to persuade other countries to stem the flow of drugs and migrants across US borders.
But while the threat to impose huge tariffs on some of the world’s largest economies is a negotiating tactic, it is also a strategy that has immediate, real-world consequences.
Before Trump even set foot in the Oval Office, his threat to impose tariffs on America’s three largest trading partners on his first day in office reverberated around the world, shocking international businesses, shaking up diplomatic relations and calling into question two major trade deals he negotiated during his first term.
Trump’s announcement late Monday that he would impose a 25 percent tariff on all goods from Canada and Mexico and a 10 percent tariff on goods from China was immediately denounced by business groups, which said such a move would cause serious economic harm. Foreign officials were quick to assure the incoming Trump administration that they had been working to stop drugs and migrants from entering the United States, while warning that they were also prepared to turn around and impose their own tariffs on American exports.
Trump’s threats may be intended to silence investors and economists who have recently cast doubt on whether the president-elect would impose the large levies he promised during the campaign. In the run-up to the election, Trump promised to impose a 60 percent tariff on goods from China and a tax of at least 10 percent on all other imports. Such a move could trigger a global trade war, slowing economies around the world.
Whether Trump’s threats ultimately prove his negotiating prowess or just sow chaos, they are a reminder that he is eager to upend global relations to try to secure points for the United States. That includes his willingness to potentially tear down trade pacts he worked hard to establish with Mexico, Canada and China during his first term, after using blunt tariffs to force them to make concessions.
One of the major outcomes of Trump’s first term was the United States-Mexico-Canada Agreement. That trade pact replaced and updated the previous agreement, the 30-year-old North American Free Trade Agreement, which Trump called the “worst trade deal ever made.”
Under the USMCA, goods that meet certain requirements are supposed to be able to move across the continent without being subject to tariffs. A 25 percent tariff on all Mexican and Canadian goods would be a clear violation of that agreement, and could affect the future of the agreement itself.
Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade negotiator, said the threats put Mexico and Canada “in a tough spot,” given their dependence on the U.S. market. The pressure on them to take steps to appease the president-elect would be strong, she said, while China could also be targeted with even more tariffs in the future.
“As in Trump’s first term, some of these tariff threats may never result in the actual imposition of tariffs,” she said. “Nevertheless, our trading partners must be prepared for additional threats, and as we speak, many are developing strategies to navigate them.”
The threats offered a preview of what could be another four years of trade tumult, mimicking Trump’s first term, when he upended the country’s economic and diplomatic relations. The president-elect has long viewed tariffs as a powerful source of leverage that, coupled with his unpredictable style, encourages other countries to make concessions quickly.
After his inauguration in 2017, Trump imposed steel and aluminum tariffs on a number of countries. He used those taxes as a negotiating tool against Canada and Mexico to renegotiate NAFTA. He also imposed significant tariffs on China in 2018, and continued to increase them over the next 18 months, until his administration signed a trade deal with Beijing in January 2020.
This time, Trump said he would attack China for failing to prevent chemicals used in fentanyl from entering the United States. He said he would impose tariffs on Mexico and Canada to force those countries to stop the flow of fentanyl and end illegal migrant crossings into the United States.
In a public letter published Tuesday, Mexican President Claudia Sheinbaum said her country had developed a comprehensive policy that had led to far fewer encounters at the U.S. border and said tariff threats would not solve the problem.
The number of illegal border crossings from Mexico is set to decline significantly in 2024, in part because of Mexico’s crackdown on migrants crossing through its country as well as new U.S. asylum restrictions on the southern border.
Sheinbaum also threatened to respond to Trump’s tariffs with levies on U.S. products, even if that hurt automakers and other companies that trade goods on both sides of the U.S.-Mexico border.
“For every tariff, there will be a response of the same kind, until we put our shared businesses at risk,” she said.
Justin Trudeau, the Canadian prime minister, said Tuesday he would hold an emergency meeting on Trump’s tariff proposal with all of Canada’s provincial and territorial leaders. He also responded to accusations in the House of Commons that he was not acting forcefully enough by saying he was working to defuse the threats.
“Rather than panicking, we are taking constructive steps to protect Canadian jobs, as we have done so far,” Trudeau said. “The idea of going to war with the United States is not what anyone wants.”
In Ottawa, Pierre Poilievre, the leader of the opposition Conservatives, indicated he is open to withdrawing Mexico from the free trade agreement.
Asked by reporters whether he would exclude Mexico from the talks to avoid Trump’s proposed tariffs, Poilievre said he would put Canada first and “do what is necessary to preserve that relationship above all others.”
Imposing 25 per cent tariffs on Canada and Mexico could cause significant damage to many industries that were organized around an integrated North American market. Since NAFTA was signed more than three decades ago, manufacturers of cars, textiles, snacks and other products have established supply chains between the countries that ensure the passage of raw materials to their final consumers.
Kim Glas, executive director of the National Council of Textile Organizations, which represents American textile manufacturers, said her industry welcomed the increased tariffs on Chinese textiles and apparel, but that imposing tariffs on Mexican and Canadian products could undermine American manufacturing.
Factories in the United States, Mexico and Canada are linked in a co-production chain under the current trade agreement, she said. The American textile industry exports 53 percent of its products to factories in Mexico and Canada, where they are turned into finished products that then return to the United States.
“This is a vital supply chain that supports American textile manufacturers, our regional trading partners and their labor,” she said, adding that the agreement “competes directly with China and Asia.”
Jake Colvin, president of the National Foreign Trade Council of the United States, which represents major multinationals, said the move would be a clear violation of the United States-Mexico-Canada Agreement, which includes tools to resolve disputes between countries without resorting to trade wars.
“While we all know the president-elect’s fondness for tariffs as a negotiating tool, it is deeply troubling that he would threaten to direct them against America’s closest allies and trading partners on the first day of his administration,” he said.
Trade lawyers said Trump would have the legal authority to sign an executive order on his first day in office, though he could choose to delay the effective date of the tariffs to force countries to the negotiating table. Trump took that approach when he first imposed tariffs on Chinese goods.
U.S. markets shrugged off the threats on Tuesday, with the Dow Jones industrial average rising to offset morning losses.
Goldman Sachs analysts said in a note Tuesday that they continued to think Mexico and Canada were more likely to avoid widespread tariffs. If tariffs were imposed, however, they estimated they would raise the U.S. effective tariff rate by 8.6 percentage points and push up a closely watched gauge of core inflation by central banks by 0.9 percent.
Source: nytimes
