Trump’s Tariff Threats Spark Chaos With U.S. Trading Partners
U.S. President-elect Donald Trump. X/ @nationalpost
November 27, 2024 Hour: 10:00 am
‘Tariffs are taxes, and prices go up as soon as they are imposed,’ Professor Amir Neto warned.
U.S. President-elect Donald Trump’s threats of 25 percent tariffs on Mexico and Canada undermine North America’s free trade foundations established in 1994.
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On Wednesday, Prime Minister Justin Trudeau will hold an emergency meeting with all Canadian provinces to discuss and potentially agree on a strategy to respond to the announcement.
For now, Canadian provinces, led by Ontario—the most industrialized province and the hub of Canada’s automotive sector—support dismantling the current United States-Mexico-Canada Agreement (USMCA) to allow Washington and Ottawa to negotiate a bilateral deal excluding Mexico.
“The tariffs would reduce after-tax incomes by 3.5 percent for those in the bottom half of the income distribution and cost a typical household in the middle of the income distribution about US$1,700 in increased taxes each year… inflicting massive collateral damage on the U.S. economy,” the Peterson Institute for International Economics warned.
Canada Fears a Recession
The concern in Canada is that even a 10 percent tariff could cost the Canadian economy around 1 percent of its Gross Domestic Product (GDP), equivalent to approximately US$30 billion. A 25 percent tariff would plunge Canada into a severe recession.
Mexican President Claudia Sheinbaum sent a letter to Trump and plans to send another to Trudeau, advocating for “cooperation and mutual economic understanding” while also suggesting that Mexican authorities could respond with their own tariffs.
The president of the Canadian Chamber of Commerce, Candace Laing, similarly argued for a Canadian response that abandons the traditional image of the “good neighbor” in favor of a more reciprocal “eye for an eye” approach.
On Monday, Trump created chaos by announcing that he will impose a 25 percent tariff on Mexico and Canada due to the flow of drugs and illegal immigration entering the U.S. He also proposed an additional 10 percent tariff on China for fentanyl trafficking.
Amir Neto, director of the Regional Economic Research Institute and assistant professor of Economics at Florida Gulf Coast University, said that imposing tariffs among the three North American partners would signify “the end of the free trade agreement” currently in place. No one knows whether Trump is bluffing to extract concessions from Mexico and Canada or if his threat is real.
“It’s possible, but the question is how likely or very likely it is. During his first presidency (2017–2021), Trump did impose tariffs on China, and the (current) president, Joe Biden, kept them in place and even increased them,” Neto added.
Patrick Dine, CEO of consulting firm PSD Global, believes Trump’s threats are a negotiating tactic but adds that “he has imposed tariffs in the past and is likely to do so again.”
Tariffs Are a Tax on the Poorest
Neto, Dine, and the vast majority of economists agree that the tariffs would also harm the U.S. economy. Canadian estimates suggest damages amounting to US$125 billion annually.
“The U.S. economy is very consumer-oriented and heavily reliant on goods from Mexico and Canada. Prices will rise, GDP will shrink, and jobs will be lost—all in the United States,” Dine said.
“Tariffs are taxes, and prices go up as soon as they’re imposed. This will be a blanket tax. Everyone will pay that 25 percent, which will affect lower-income individuals more than those with higher incomes who can better mitigate its impact,” Neto emphasized.
Dine also pointed out that the tariffs Trump threatens to impose are temporary, intended to remain in effect until Mexico and Canada address the “invasive” flow of fentanyl and undocumented immigrants, which the Republican politician blames on these two countries.
Trump has for now created chaos around him, shaking decades-old stable relationships and a USMCA agreement that was expected to remain in effect at least until 2026.
Ontario’s Premier Doug Ford, a conservative, responded indignantly to the suggestion that the U.S. faces the same problem at its border with Canada as with Mexico. “Comparing us is the most insulting thing I’ve ever heard from our U.S. friends,” Ford declared. This statement, however, threatens to cause irreparable damage to Canada-Mexico relations.
teleSUR/ JF Source: EFE – PIE
