President-elect Donald Trump’s threat to impose tariffs on Canada, China and Mexico on the first day of his administration could dramatically raise prices for Americans on everything from cars to clothing to oil.
It could also blow up a trade agreement between the United States, Canada and Mexico (USMCA), which entered into force in 2020 after extensive and intense negotiations by Trump’s own administration.
Trump said late Monday that he would slap Mexico and Canada with a 25% tariff on all products entering the United States until that country takes action to stem illegal immigration and drug spills across the border.
For China, Trump said he would impose an additional 10% tariff on products coming into the United States
Mexico, Canada and China are America’s top three trading partners, meaning Trump’s tariff plan will affect almost every aspect of the American economy.
President-elect Donald Trump speaks during an America First Policy Institute gala at his Mar-a-Lago estate, Nov. 14, 2024, in Palm Beach, Fla.
Carlos Barria/Reuters
While it could well be a negotiating tactic similar to how Trump threatened tariffs in his first administration, experts say it won’t be as effective this time because countries know what’s coming.
“This is more likely a play designed to put pressure on our closest trading partners,” said Raymond Robertson, professor of trade, economics and public policy at Texas A.&M University. “But this is the same playbook done the second time. If you’re on the football field and you call the same play twice, it’s not going to be as effective the second time.
Robertson added that countries know this would be “disruptive” and a “disaster,” but they have “seen how this game works.”
Trading partners could seek closer ties to Europe and other countries and rely less on the United States, “which means higher prices for us,” Robertson said. He added that the plan would also likely push Mexico and China closer together.
“Trump ran on this whole campaign that inflation is too high, but now he’s going to put a tax on everything you buy,” Robertson said.
Most economists agree that tariffs are inflationary by passing on the higher costs of inputs to consumers. The Peterson Institute for International Economics estimated that Trump’s proposed tariffs from the campaign trail would cost American households more than $2,600 a year.
What is the current trade agreement between the US, Canada and Mexico?
The USMCA was signed by Trump as an update to the North American Free Trade Agreement, or NAFTA.
It allowed mostly duty-free trade between the three countries. Trump’s threat of tariffs appears to violate the terms.
Trump said on the campaign trail this year that he wanted to renegotiate the USMCA by taking advantage of a window that allows for a review six years after signing. But that opportunity to renegotiate would not come until 2026.
Shipping containers are stored at the Port Newark Container Terminal in Newark, New Jersey on July 21, 2022.
Kena Betancur/AFP via Getty Images, FILES
Canadian Prime Minister Justin Trudeau said he spoke with Trump Monday night and “it was a good call.”
“We’ve obviously talked about presenting the facts and talking about how the intense and effective relations between our two countries flow back and forth,” Trudeau said. “We talked about some of the challenges that we can work on together.”
Mexico’s president, meanwhile, fired back at Trump, warning him not to start a trade war.
“President Trump, it is not through threats or through tariffs that migration and drug use in the United States will be dealt with. These major challenges require cooperation and mutual understanding,” President Claudia Sheinbaum said at her daily news conference as she read a letter aloud. her administration will send Trump later Tuesday.
The USMCA was a big deal for Trump — a 2016 campaign promise he delivered on and a major bipartisan achievement for his administration.
During his first run for the White House, he promised to negotiate a better NAFTA, calling it one of the worst trade deals ever.
It took most of his term, but he got an agreement with America’s neighbors to the north and south. And he signed with great fanfare at the White House on January 29, 2020, surrounded by Americans in uniforms, hard hats and cowboy hats.
“Everybody said this was a deal that couldn’t be done — too complicated, too big, couldn’t be done. We got it done,” Trump said that day.
