Trump: Tariffs on China, Mexico, Canada will start Saturday, Feb 1 – National & International News – FRI 31Jan2024
Trump says his tariffs on Mexico, Canada and China will go into effect tomorrow, though details remain sketchy. What are the possible impacts on American consumers and businesses?
Trump: Tariffs on China, Mexico, Canada will start Saturday
The Trump administration is set to impose 25% tariffs on Mexico and Canada and a 10% tariff on China starting tomorrow. Trump’s enthusiasm for tariffs featured heavily in his campaign. However, he did not make good on his vow to impose tariffs on day one of his administration. Instead, he imposed a deadline of February 1.
There isn’t much clarity yet on what exactly will be implemented starting tomorrow, or whether there will be exemptions applied to certain types of goods. Earlier this month, a White House memo implied that Trump’s aides would have until April 1 to assess migration and fentanyl flows from Mexico, Canada, and China and to make recommendations for “appropriate trade and national security measures to resolve that emergency”.
White House Press Secretary Karoline Leavitt insists that the tariffs will be in place starting tomorrow. When asked by multiple reporters, she said that further details on goods being targeted would be forthcoming. Trump also said there was nothing any of the three countries could do at this point to delay imposition of the tariffs. However, a Wall Street Journal report suggests that Trump aides are still working behind the scenes to find some off ramps and perhaps some carve outs from the universal tariffs.
The tariffs, as described by Trump, are likely to increase prices on numerous goods and services. Many key US industries are also likely to be impacted.
Immigration, fentanyl, trade deficits
Trump has promoted these tariffs as a means of pressuring Canada, Mexico, and China to clamp down on flows of fentanyl coming into the United States. He also wants Mexico and Canada to beef up enforcement to decrease the flow of migrants into the US.
The US also has a high trade deficit with these other countries, meaning that the value of US imports from these countries is generally much higher than the US goods imported by these other countries. Trump is fond of pointing to these deficits as evidence that other countries treat the US “very badly” on trade.
Trump has also touted the tariffs as a way to bolster US revenue. “Instead of taxing our citizens to enrich other countries,” Trump said, “we will tariff and tax foreign countries to enrich our citizens”.
However, foreign countries will not be the ones paying the tariffs. Those tariffs will be paid by US importers who will then most likely pass on the cost to American consumers. As a result, inflation weary Americans may have to prepare themselves to pay more for certain goods.
Price shocks
The US imports many key goods from both Mexico and Canada, including lumber, steel, fresh produce, machine parts, clothing, shoes, as well as meats, grains, and other agricultural goods. Mexico provides 90% of the avocados consumed in the US. If the tariffs indeed go into effect tomorrow, a bowl of guacamole for the upcoming Super Bowl could wind up costing 25% more.
China is a key source for a plethora of goods, including furniture, electronics, home appliances, toys, clothing, shoes, building materials, machine parts and other manufactured goods.
Cars and manufacturing
The US automobile industry may be particularly hard hit by these tariffs. Components used in vehicles sometimes cross back and forth from the US into China or Mexico multiple times during the production process. This would mean these parts could incur 25% tariffs multiple times before a vehicle is fully assembled. The end result will be a much more expensive vehicle.
Other manufacturing sectors in the US also depend heavily on imported machine parts from Canada. This could further increase manufacturing costs in domestic factories and potentially drive price hikes and layoffs.
Oil
Trump said earlier this week that he may impose a lower tariff on oil imports from Canada. Many of the aging refineries in the US are geared to take heavier-grade crude than what the US produces domestically. The only close sources of this heavy crude are Canada and Venezuela.
If high tariffs are imposed on Mexican and Canadian crude, this would put the Trump administration in a dilemma. The US would either have to import oil from Venezuela (a country we heavily sanctioned and have poor relations with) or risk a spike in domestic gas prices.
US investment and jobs
Trump is also gambling that high US tariffs would encourage international corporations to do more of their manufacturing in the US and thus create jobs. The tariff threat has in fact borne some fruit in this direction, but in other quarters it has proven counterproductive. Some major international companies have in fact been moving to bring some of their manufacturing to the US since Trump was elected in November. On the other hand, many countries and large multinational corporations have also been working to improve their trade ties with countries other than the US to offset any loss of business.
Even if tariffs do drive greater investment in the US and create jobs, those jobs will not appear overnight in the meantime, higher domestic manufacturing costs could also lead to layoffs in key employment sectors. Trump has acknowledged that Americans will have to expect higher prices on many goods and that there will be “temporary short-term disruption”.
Retaliation
Another potential pressure on US manufacturers and employers could come in the form of retaliatory tariffs from Mexico, Canada, and China. American businesses that export heavily to these countries could take a serious hit and could resort to layoffs if there is a drop in demand.
Canadian Prime Minister Justin Trudeau has promised an immediate and “forceful but reasonable” response to US tariffs. Mexican President Claudia Sheinbaum has also said that her government will impose retaliatory tariffs accordingly. “We have a plan a, plan b and Plan c for whatever the US government decides,” she said. Chinese officials also have vowed to “firmly defend” their interests.
