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Will Trump's tariffs on Mexico and Canada really start tomorrow?
America’s two largest trading partners are on tenterhooks today, after Donald Trump vowed to follow through on his tariff threats, and whack a 25 per cent tax on imports from Canada and Mexico, starting tomorrow.
Tariffs will begin at 25 per cent and “may or may not rise with time”, said the US President, speaking to reporters in the Oval Office.
Canadian PM Justin Trudeau issued a rebuke this afternoon, insisting: “We’re ready with a response – a purposeful, forceful but reasonable, immediate response”.
Trump’s tariffs are designed to encourage both Canada and Mexico to take drastic steps to crack down on irregular immigration and on drug gangs importing fentanyl across the border into America.
Tariffs are also a tool for Trump to rail against America’s trade deficit: the fact that the US imports more goods than it exports.
A steep import tax on goods produced abroad means Americans are much more likely to buy US products instead, boosting the domestic economy. High tariffs also incentivise US companies to move their manufacturing from abroad to American shores. “All you have to do is build your plant in the United States, and you don’t have tariffs,” reasoned Trump, a few weeks before the election.
However, across-the-board tariffs would have some undesirable consequences for Americans too. There is no shortage of economists warning that they would result in US inflation spiking.
While Trump insists that foreign countries pay for tariffs, tariffs are actually paid by the American companies importing goods from abroad. The automotive and steel sectors are just two examples of US industries reliant on supply chains that cross the US borders.
The United Steelworkers, an influential union whose members helped elect Trump across the industrial Midwest, has stressed that around 30,000 steelworkers are employed by oil refineries that use Canadian crude.
Around 40% of the crude that runs through US oil refineries is imported, the vast majority from Canada. Meaning, for Americans, tariffs on imported energy could increase the price of everything from petrol to groceries.
And, while the economic leverage Trump has over Canada and Mexico is considerable, there is still room for the US to be bruised by any retaliatory measures.
Earlier this week, Mexico’s Economy Minister Marcelo Ebrard claimed that the country has been plotting its response during weekly meetings for the past eight months, adding: “I can’t reveal what’s planned, but you can be sure that we have studied it very carefully”.
In 2018, Mexico responded to US tariffs on steel and aluminum with tariffs of its own which targeted American products ranging from steel to pork to bourbon.
So, do we really expect Trump to whack across-the-board 25 per cent tariffs on his northern and southern neighbours tomorrow?
According to the Wall Street Journal, amid ongoing negotiations with Canada and Mexico, President Trump’s advisers are preparing to opt for more targeted measures. While some sort of trade action by Saturday is likely, it may well only affect certain sectors, such as aluminum, with exemptions for products such as oil.
Another possibility is that Trump will press ahead with his bombshell tariff announcement tomorrow but with a grace period before they are actually implemented, allowing negotiations with his two neighbours to continue.
Team Trump has always stressed that tariff threats are above all a negotiating tactic.
Something we’ve already seen evidence of: Trump quickly rescinded his tariff threat against Columbia once his deportations spat with the South American nation was resolved.
Mexican and Canadian officials may take some comfort in the words of Howard Lutnick, Trump’s nominee for Commerce Secretary, earlier this week.
“It’s not a tariff per se … It’s an act of domestic policy,” Lutnick told lawmakers on Wednesday. If Canada and Mexico comply with Trump’s demands to curtail migration and drug smuggling, he added, “there will be no tariffs.”
Caitlin Allen
Deputy Editor
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