United States President-elect Donald Trump has threatened to impose sweeping tariffs on the United States’s three largest trading partners – Canada, Mexico and China – as soon as he takes office on January 20.
While Trump used tariffs during his first term to punish countries such as China for what he said were unfair trade practices, he has cast the latest measures as a response to the flow of illegal drugs and undocumented migrants across the US border.
“Both Mexico and Canada have the absolute right and power to easily solve this long-simmering problem,” Trump said on Monday in a post on his social media platform Truth Social.
“We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
How high are Trump’s proposed tariffs?
Trump said he would sign an executive order imposing a 25 percent tariff on all Mexican and Canadian imports and an “additional” 10 percent tariff on Chinese goods on the first day of his administration.
It was not immediately clear if the proposed tariffs would be in addition to tariffs he floated while on campaign trail.
During his election campaign, Trump said he would impose tariffs of 60 percent or more on imports of Chinese goods and suggested he could impose a tariff of 1,000 percent or higher on vehicles imported from Mexico.
In his announcement on Monday, the president-elect said the tariffs would remain on Mexican and Canadian goods until the “invasion” of drugs and undocumented migrants came to an end.
He said the tariffs would apply to Chinese goods until Beijing took action to stop the flow of fentanyl, a synthetic opioid responsible for tens of thousands of deaths each year, into the country.
Some Trump allies have suggested that the president-elect sees the threat of tariffs primarily as a bargaining chip to use in future negotiations with foreign countries.
How have Canada, Mexico and China reacted?
Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland issued a statement that did not directly refer to Trump’s threat, but stressed the close cooperation between the countries on trade and border security.
“Canada places the highest priority on border security and the integrity of our shared border. Our relationship today is balanced and mutually beneficial, particularly for American workers,” Freeland said.
“Today, Canada buys more from the United States than China, Japan, France and the UK combined.”
Ontario Premier Doug Ford issued a more direct warning, saying the tariffs would be “devastating to workers and jobs in both the US and Canada”.
“The federal government needs to take the situation at our border seriously. We need a Team Canada approach and response – and we need it now. Prime Minister Trudeau must call an urgent meeting with all premiers,” Ford said in a post on X.
China’s embassy in Washington said a trade war would not benefit either side.
“About the issue of US tariffs on China, China believes that China-US economic and trade cooperation is mutually beneficial in nature,” spokesperson Liu Pengyu said in a statement.
Mexico has yet to respond to Trump’s latest threat, but Mexico’s Secretary of Economy Marcelo Ebrard earlier this month told a radio station that his country would respond in kind if the US imposed tariffs on its exports.
How have global markets responded?
The Canadian dollar and the Mexican peso slipped to their lowest level against US dollar since 2020 and 2022, respectively, after Trump’s announcement.
China’s yuan weakened to its lowest level since July.
Other major currencies, including the euro, British pound, the Korean won and the Australian dollar, also fell.
Most of Asia’s major stock indexes fell, with Japan’s Nikkei 225 down 1.96 percent at one point on Tuesday.
Markets will be taking note that Trump appears serious about reducing the US trade deficit with other countries, said Steve Okun, founder and CEO of Singapore-based APAC Advisors.
China, Mexico and Canada are the US’s three biggest trading partners, accounting for $830bn of US exports and $1.43 trillion of US imports, respectively, in 2022, according to the Office of the US Trade Representative.
The US imports more than it exports in the case of all three countries.
Last year, the trade deficit stood at $67.9bn for Canada, $152.4bn for Mexico, and $279.4bn for China, according to the US Bureau of Economic Analysis.
The fact that the US has a trade deficit with many of its trading partners has preoccupied Trump since his first term in office and was cited as part of his rationale for initiating a trade war with China in 2018.
“What the rest of the world should take from this is that Trump views relationships on a bilateral perspective and Trump views relationships based on whether the US has a trade deficit or a trade surplus with a given country,” Okun told Al Jazeera.
“If the US has a trade deficit with a country, you address the deficit, typically through tariffs.”
What will the tariffs do?
The immediate impact would be to make it more expensive for companies in Canada, Mexico and China to export goods to the US, cutting into their bottom line.
Companies, in turn, are likely to pass these higher costs on to customers, leading to higher prices.
The tariffs would likely have a serious impact on Mexico’s auto industry in particular, as the Central American country is home to manufacturing plants for Honda, Nissan, Toyota, Mazda and Kia, as well as a number of Chinese auto part suppliers.
The tariffs would also hit Asian tech companies such as Foxconn, Nvidia, Lenovo and LG, which expanded their footprint in Mexico with server facilities and factories that produce everything from electric vehicle parts to flat-screen TVs.
Canadian media reported that even a 10 percent tariff could result in $21bn (Canadian $30 billion) a year in economic costs, citing previous estimates from the Canadian Chamber of Commerce.
The country’s main exports to the US are petroleum, gas and vehicles.
In the longer term, tariffs would have an inflationary impact in the US and negatively affect global trade, according to Gary Ng, senior economist for Asia Pacific at Natixis in Hong Kong.
“The tariffs can lead to higher inflation in the US, meaning the Fed will find it harder to cut rates,” Ng told Al Jazeera, referring to the US central bank.
“Therefore, the direct implication is that the dollar will remain strong, and global central banks will find it hard to relax policies unless they accept currency depreciation … This is positive for US growth in the short run but bad for the rest of the world.”
How will Trump’s announcement affect US relations with Canada, Mexico and China?
Some analysts believe Trump is using tariffs to signal to Canada and Mexico that he intends to renegotiate the United States-Mexico-Canada Agreement (USMCA), a free trade agreement that he signed in 2020 as a replacement for the North American Free Trade Agreement.
Although the USMCA updated the terms of trade in some areas, it largely kept NAFTA’s original provisions in place.
“Trump has made very clear that USMCA is something that needs to be relooked at and renegotiated when he becomes president. You could look at these tariffs on Mexico and Canada as a precursor to a renegotiation,” Okun said.
Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney, said the tariffs would effectively end free trade among the US, Canada and Mexico.
“The president-elect says it’s based on banning the drug fentanyl by halting trade – or providing a disincentive – and immigration, but non-fentanyl goods will get caught in the crossfire,” Harcourt told Al Jazeera.
