President-elect Donald Trump vowed to slap onerous tariffs on all products coming into the United States from Mexico, Canada, and China beginning on his first day in office, January 20, 2025. It is part of a far-reaching program to crack down on illegal immigration and the flow of drugs, especially fentanyl. These would be proposed tariffs, 25 percent on all goods from Mexico and Canada, an additional 10 percent on Chinese imports. Deep in their consequences for the United States’ economy and trading partners, profound could be the outcomes.
The reason for the tariffs
The tariffs are a centerpiece of Trump’s argument over his administration’s efforts to reduce illegal immigration and stop the flow of drugs across the border. He had promised in several posts via his Truth Social platform that the tariffs would remain in place until such a time when Mexico and Canada take appropriate action with regard to drug smuggling and illegal border crossings. He blamed China for not doing enough to deal with the fentanyl crisis, “which has killed tens of thousands of Americans through overdose.”
The proposed tariffs have been structured as financial punishment on these countries until they yield to US demands for both immigration and drug enforcement. Trump said, “Both Mexico and Canada fully have the power to completely stop this long-time problem. The time has come where they must be held accountable.”
Economic impact on trading partners
Such tariffs could have an immediate disastrous economic effect, especially on Canada and Mexico, who rank among the largest trading partners of the United States. About 75% of all Canadian exports go to the U.S., making Canada extremely vulnerable in such conditions of disrupted trade. The Canadian dollar fell sharply against the U.S. dollar following Trump’s announcement, reflecting market concerns about potential economic fallout.
Mexico’s economy also stands to suffer significantly from these tariffs. The country is a major supplier of crude oil to the U.S., and any increase in tariffs could lead to higher prices for American consumers while jeopardizing trade relations. Economists warn that these tariffs could disrupt established supply chains and lead to retaliatory measures from both Canada and Mexico, further complicating trade dynamics in North America.
Effect on American consumers
While these may be promoted as national security measures brought forth by the Trump administration, they very well may translate to real consequences for American consumers. Increased tariffs on goods commonly result in increased pricing for those goods once processed and then sold by manufacturers. One recent estimate shows that families may have to pay almost $200 more on grocery items following the new imposition of these tariffs.
Further, any price increases would not stop with food items; foodstuffs, cars, electronics, and household goods could be highly more expensive, too. The 25 percent tariffs on imported vehicles from Mexico, for instance, are likely to translate into higher prices at dealerships throughout the United States, depressing consumer choices and ultimately dampening sales in an economy that is already heavy with headwinds.
Legal challenges and trade agreements
Such broad-based tariffs, if enacted, might be challenged on their legality under existing trade agreements, including USMCA. USMCA created a duty-free trading relationship among its three member countries and thus may prohibit new tariffs from being placed. Legal experts think, though it is possible that Trump would try using national security exceptions under the USMCA provisions, such actions may be taken to a prolonged litigation process.
Also, this position of Trump may indicate a general negotiation strategy, and not a policy direction that has taken shape. Indeed, similar threats issued during past terms were, in fact, negotiating chips in trade negotiation, rather than policy implementation.
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