“Trump’s Bold Promise: Big Tariffs on Goods from Mexico, Canada, and China Starting Day 1”

On Monday, President-elect Donald Trump promised dramatic increases in tariffs on goods made in China, Canada, and Mexico, effective on his first day in the White House, which could send costs soaring for U.S. consumers and corporations.

He said the action will be taken because of illegal immigration and “crime and drugs” being moved across borders.

Trump wrote on his Truth Social platform, “As one of my many first Executive Orders, I will sign all necessary documents on January 20th to charge Mexico and Canada and its ridiculous Open Borders a 25% Tariff on ALL products coming into the United States.” As long as drugs, especially fentanyl, and all illegal aliens continue to invade our country, this tariff will be in place.
This long festering wound, Trump also said, can easily be solved by America’s neighbours.
Similarly, “until China stops the flow of illegal narcotics into all of our communities, Chinese exports will be subject to a 10% higher tariff than that currently in place,” Trump declared.

On Truth Social, Trump noted that he had many discussions with China about the huge amounts of drugs, especially fentanyl flowing into the United States – But nothing ever happened:

In his statement on Friday, however, the president-elect said that, regarding drug dealers caught smuggling drugs into the US, authorities in China “never followed up” to punish them.

According to his country, “the idea that China knowingly allows fentanyl precursors to flow into the United States runs completely counter to facts and reality,” and the US has been in contact with China regarding counternarcotics measures.

Regarding US tariffs on China, China believes that trade and economic cooperation between the two nations benefits both parties. Liu said in an interview with CNN that no one would win a trade or tariff war.

CNN has reached out to the embassies of Canada and Mexico for comment.

A significant policy change

Sectors and supply systems in America that heavily rely on products from the country’s closest trading partners may suffer significantly if punitive tariffs are imposed.

“This evening’s proposed measures could have a significant impact on a number of key US industrial sectors, increase tax burdens by about $272 billion annually, increase the cost of goods, increase interest rates, and weaken an already vulnerable household sector,” Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, stated.

The statement caused the Mexican peso to drop 2% against the US dollar and the Canadian dollar to drop 1.2% against the US dollar. In offshore markets, the value of the Chinese yuan increased, surpassing 7.6%, despite being under government control.

The tariffs hurt America’s financial markets even if investors believed they ultimately would strengthen the dollar. For everyday goods that once had passed over the border without paying import duties, unprecedented charges would translate to U.S. consumers experiencing skyrocketing prices.

That dramatic shift may hinder economic growth especially if customers who are tired of inflation reduce their spending in response to inflation.

Prior to Trump’s remarks, US stock futures were up, but they experienced a slight decline. Dow futures were down 160 points, or 0.3%. The broader S&P 500 was down 0.4%, and Nasdaq futures were down 0.4% as well. The price of US Treasury bonds went down.

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What America imports

According to the US Energy Information Administration, oil is the largest import from Canada to the United States, with a record daily production of 4.3 million barrels in July. Additional resources include reports from the United Nations’ Comtrade, which indicate that Canada supplies the United States with timber, plastics, machinery, automobiles, among other commodities.

Mexico is the biggest supplier of cars and auto parts to America and, in 2023, finally eclipsed China as the country’s leading exporter to the US, based on data released earlier this year by the Commerce Department. Beyond that, Mexico is also a major supplier of gasoline, machinery, electronics, and optical equipment. In addition, Mexico is the biggest supplier of furniture and alcohol to the United States.

Apart from machinery, toys, games, sports equipment, furniture, and plastics, the United States imports a huge number of electronics from China.

CNN reported that during his first term, Trump levied duties on over $380 billion worth of goods that involved thousands of Chinese-made items such as sneakers, bags, bicycles, TVs, and baseball hats. Solar panels, washing machines, aluminum, and steel imported from other countries are also under the levies of Trump.

As part of the bill, Trump has pressed for a new USMCA trade agreement between the three countries, which exempts many U.S. imports from Canada and Mexico from tariffs. It is unclear how Trump would implement the proposed duties without violating the USMCA.

As a political victory and one of the highlights of his presidency, Trump frequently cites the passage of the USMCA, which replaced NAFTA.

Trump’s tariff plan

Trump promised in his campaign to deploy tariffs as a weapon against foreign countries, exactly as he had done during his first tenure, to boost home manufacturing and raise tax money to cover the significant revenue shortfalls that his proposed tax cut plan would cause.

Tariffs essentially serve as a levy on goods brought into the US. Trump has often asserted that the tariffs are paid by the targeted foreign nations. However, in practice, it is the corporations buying those imported goods that incur the expense, and American consumers frequently bear the cost. The Peterson Institute for International Economics estimates that the average US household would pay over $2,600 a year with Trump’s planned tariffs, and most mainstream economists believe they will lead to inflation.

According to Trump’s pick for Treasury Secretary Scott Bessent, if tariffs are used correctly, they will not increase inflation. Since it is widely assumed that Bessent will apply tariffs gradually, Wall Street applauds his nomination.

Their tasks, however, would be undertaken by Bessent if confirmed by the Senate together with the US Trade Representative and Commerce Secretary to administer the duties, although much authority to impose tariffs on a button lays with Trump, president. Indeed he imposed substantial impositions on various products, which were chiefly from China, when last in the White House.

Tariffs are problematic because they often result in retaliatory policies by the targeted nations, thus launching a trade war. This is exactly what occurred during Trump’s first term. As a result, the effects of the tariffs on national output were alleviated as producers’ products lost their appeal to foreign consumers.

He has said his second term will see far higher tariffs. He keeps talking about many different numbers, but he’s proposed a duty of up to 60% on all Chinese goods and a general tariff of 10% or 20% on all other imports entering the US.