The prospect of another trade war emerged this week after President-elect Donald Trump threatened major tariffs targeting products from America’s three largest trade partners – Mexico, Canada, and China. If enacted, the proposed tariffs could disrupt international supply chains, raise U.S. consumer prices, and deal severe economic blows to Mexico and Canada, in particular.
Monday’s announcement of the tariffs have left many economists reevaluating their assumptions. During his campaign, Trump pledged significant tariffs, but many believed his presidency would bring a more tempered approach. Instead, these threats mark a dramatic escalation in rhetoric, possibly serving as a hardline negotiating tactic or a prelude to reshaping trade relationships.
The Tariff Details
Trump’s proposal includes:
- A 25% tariff on goods from Mexico and Canada unless they curb migrant and illicit drug flows into the United States.
- A 10% tariff on Chinese goods, aimed at pressuring Beijing to crack down on fentanyl traffickers.
- Indefinite continuation of tariffs until demands are met.
What Goods Will Be Impacted?
As part of a deeply interconnected trading system among North American countries, 83% of Mexico’s exports went to the U.S. last year, and 75% of Canada’s exports did, per Business Insider.
Here are just a few of the goods getting shipped across the U.S. border that would face steep tariffs, costs that American businesses would incur and likely pass along to American consumers:
- Autos: Cars account for 26% of Mexican exports and 12% of Canadian exports to the U.S., representing a significant portion of the $920 billion worth of goods the U.S. imports from its northern and southern neighbors.
- Fuel: Gas for vehicles might also get pricier since Canada is the largest foreign supplier of oil to the U.S.
- Produce: Much product in American supermarkets comes with a grown-in-Mexico sticker. The country is the No. 1 exporter of raspberries, tomatoes, strawberries, and avocados to the U.S., according to the University of California, Davis.
- Meet and Dairy: Canada sends millions of cows for dairy and beef and hogs across its southern border every year.
How Consumers Will Feel the Pinch
Tariffs often lead to higher consumer prices, and the effects could begin even before they are implemented. Businesses may rush to stockpile nonperishable goods, causing a preemptive surge in prices. While some businesses might absorb part of the tariffs, others will pass the costs to consumers. Additionally, competitors outside of Mexico, Canada, and China may exploit the situation to raise their prices.
A History of Tough Trade Talk
Trump has used tariffs before as leverage to secure concessions in trade deals. However, this strategy isn’t without risks. Retaliation could escalate tensions, further complicating negotiations. Mexican President Claudia Sheinbaum wrote a letter to Trump suggesting she would retaliate with tariffs of her own, while Canadian Prime Minister Justin Trudeau called Trump to discuss cooperation. China argued that “no one will win a trade war,” signaling its resistance to the proposed measures.
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