Comments made by President-elect Donald Trump this week on more tariffs coming once he takes office have raised fears about a new trade war. Trump said he wanted to charge a 25% duty on all goods coming from Canada and Mexico and he also proposed an additional 10% tariff on Chinese goods. The returning president said that all three countries should curb the production and cross-border trade of fentanyl that is entering the U.S. in large amounts and is responsible for a lot of drug overdoses in the country. Another accusation of Trump against Mexico and Canada is that the nations are not effectively stopping illegal immigration into the U.S.
Tariffs on the U.S.’ neighbors would mean Trump would end the United States-Mexico-Canada Agreement on free trade that his administration negotiated and that he himself signed in 2018 as a successor to the North American Free Trade Agreement, NAFTA for short. While this shows that Trump is potentially willing to blow up even his own deals, it also demonstrates that questions of trade are not necessarily at the heart of them but instead that they are used to pressure partners. Whether Trump will follow through with the tariffs in case his demands are not met is unclear, but his track record says it is possible.
One trade partner that takes to this approach particularly badly is China, which introduced retaliatory tariffs last time Trump raised duties on the country’s products, which caused the trade war to escalate quickly. Mexico also threatened to collect duties on U.S. good entering the country if Trump should slap a tariff on theirs. Canadian officials skirted the question. However, both countries also signaled their willingness to negotiate. China, on the other hand, is known to play hardball, which paired with the same attitude on the U.S. side of things could signal a repeat of the 2018/2019 tariff spiral.
Trump Picks Biggest Trading Partners
The three countries in question are the U.S.’ biggest trade partners. Mayor products traded with them include items from the sectors of machinery and transportation, including cars and car parts, but also mineral fuels. Cars in general are the U.S.’ biggest import by value and higher prices for them are expected if tariffs were to be leveled. Big carmakers with factories in Mexico and Canada include General Motors, Ford and Stellantis. Imports from China meanwhile focus a lot on machinery, like electric and electronic products, but the country also ships plastic and miscellaneous items to the U.S.
If retaliatory tariffs should become a reality, U.S. exporters could be hit hard yet again. In 2018/2019, agricultural producers lost more than $25 billion due to missing out on exports to China, which had to be compensated federally. This time around, the impact could be even more dire as China is buying more ag products from the U.S. now than it did back then. This is the result of another Trump-era deal, the 2020 so-called Phase One agreement, in which China, among other things, agreed to buy more U.S. farm products, eventually making them the biggest international buyer outright. The largest export from the United States to China in 2022 was $18 billion worth of soybeans, according to data published by the Observatory of Economic Complexity.
Apart from other ag products, China buys many integrated circuits and petroleum products from the United States. Exports to Canada and Mexico are meanwhile more diversified and tariffs could hit exporters from many different sectors. The same is true for imports from China, which are more diverse than those from Canada and Mexico, potentially making a lot of different items more expensive for U.S. buyers if blanket tariffs should become a reality.
Charted by Statista
