By Eric Vandenbroeck and co-workers

The Retaliatory Actions

President Donald Trump announced extraordinary new tariffs on Mexico, Canada, and China, signing the long-promised economic policy at his Mar-a-Lago club on Saturday. The Trump administration said tariffs are aimed at curbing the flow of drugs and undocumented immigrants into the US, but they potentially risk substantial price increases for American consumers across an array of common goods from avocados to sneakers to cars.

The move sets the stage for a possible North American trade war that economists say could hurt economic growth on the continent and increase inflation. Plus hours later, Mexican President Claudia Sheinbaum said her country would impose retaliatory tariffs, and Canadian Prime Minister Justin Trudeau announced “far-reaching” retaliatory levies. China’s commerce ministry said it will file a complaint with the World Trade Organization and “take corresponding countermeasures,” without elaborating.

Erecting a tariff wall around the U.S. and replacing traded goods with domestically-made ones furthermore would force the creation of low-wage, low-value-added jobs, when workers to fill those jobs aren’t even available.

Tariffs could also fuel inflation, the year-round availability of food products, such as fruits and vegetables, requires imports to supplement domestic production. New tariffs will drive up the cost of doing business and food prices at a time when consumers are extremely concerned about prices.

Mexico’s Sheinbaum also struck a defiant tone Saturday, while China’s Ministry of Commerce said the imposition of tariffs seriously violates World Trade Organization rules. China announced it will file a complaint with the WTO, and will take corresponding countermeasures to resolutely defend its rights, it said. It is not clear what the measures will be.

Tariffs are unpopular among mainstream economists, who largely agree they cause inflation. That’s because importers, not the countries exporting the goods, pay the tax, and they typically pass that cost on to consumers in the form of higher prices. New research from the Peterson Institute for International Economics suggests Trump’s aggressive tariff campaign will force American consumers to pay more for practically everything, from foreign-made sneakers and toys to food.

 

Businesses lash out at Trump’s tariff plan

The US Chamber of Commerce slammed the levies, warning they will raise consumer prices. In a statement, the powerful business group acknowledged that Trump is right to focus on securing the border and fighting the illicit flow of fentanyl.

But the imposition of tariffs under IEEPA is unprecedented, won’t solve these problems, and will only raise prices for American families and upend supply chains. 

The Distilled Spirits Council of the US, the Mexican Chamber of the Tequila Industry, and Spirits Canada said in a joint statement that they are “deeply concerned that U.S. tariffs on imported spirits from Canada and Mexico will significantly harm all three countries.” Last year, the US imported $46 billion of agricultural products from Mexico, according to US Department of Agriculture data. That includes $8.3 billion worth of fresh vegetables, $5.9 billion of beer, and $5 billion of distilled spirits.

The energy industry was unsatisfied with the reduced tariffs on Canadian oil, gas, and electricity. The American Petroleum Institute, which represents Big Oil and natural gas companies, said in a statement that it wanted to be fully left out of the tariffs. It noted fuel prices would rise on the $14.4 billion of oil and natural gas imported each year from Canada.

NEMA, which represents the electricity industry, urged the Trump administration to take a more cautious approach to tariffs, noting the electricity and electronics industries make up a large chunk of America’s imported and exported goods.

Western Growers, which represents farmers, said the tariffs would hurt America’s food producers.

While we appreciate the border security issues motivating the Trump Administration, rival growers of specialty crops outside of the U.S. will move quickly to seize the new business opportunities created by these tariffs to sell into the Canadian, Mexican, and Chinese marketplaces. Consumer advocacy groups also warned Trump’s plans would raise costs for Americans.

 

Why those countries? Key trading partners

Mexico, China, and Canada are the United States’ three largest trade partners.  In 2023, Mexico overtook China as the top nation exporting goods to the US, marking the first time in two decades China was not the top-ranking exporter. Tariffs the first Trump administration put in place, which Joe Biden’s administration largely maintained, have negatively impacted the amount of goods the US imports from China. Mexican and Canadian goods have been imported into the US virtually duty-free as a result of the United States-Mexico-Canada Agreement, which Trump negotiated with America’s bordering nations during his first administration.

Mexico maintained that top position last year as well, exporting $467 billion worth of goods to the US, followed by China and Canada, which exported $401 billion and $377 billion worth of goods, respectively.

That’s according to Commerce Department figures from last year through November, the most recent month of available data. Collectively, the three countries accounted for 42% of the nearly $3 trillion worth of goods the US imported worldwide last year.

Canada was the top country the US exported goods to last year, valued at $322 billion, followed by Mexico and China, which received $309 billion and $131 billion worth of goods from the US, respectively. US exports to the three countries accounted for over 40% of the $1.9 trillion worth of goods the US exported globally last year. That means Americans could pay a lot more for a wide range of goods.

For instance, the US imported $87 billion worth of motor vehicles and $64 billion worth of vehicle parts from Mexico last year, not accounting for December, according to Commerce Department data. Both are likely to get more expensive almost immediately after any new tariffs that impact Mexican car exports to the US.

Automakers have operated as if Canada, Mexico, and the United States were one unified market for decades, moving vehicles and parts across borders as they assemble vehicles. Even cars assembled at US auto plants all have parts that come from both Mexico and Canada, and vehicles assembled in those two countries have parts that come from US factories.

Canada now accounts for nearly a quarter of steel imported by American businesses by weight, while Mexico accounts for about 12%, according to government data provided by the American Iron and Steel Institute, an industry trade group.

Gas, fresh produce, and consumer electronics, some of the top goods the US imports from Mexico, China, and Canada, could also be set to get more expensive with blanket tariffs.

 

 

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