WASHINGTON, Jan 28: Having already forced Colombia to accept deportees by threatening a 25 per cent tariff, President Donald Trump is readying the same move against Canada and Mexico as soon as Saturday.
But this time, the stakes are higher and many economists surveying the possible damage doubt Trump would be comfortable with what they say would be self-inflicted wounds from the tariffs.
“The potential for such sizable economic impacts ought to act as enough of a deterrent that Trump will not end up implementing these higher tariffs,” said Matthew Martin, senior US economist at the consultancy Oxford Economics.
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Trump has repeatedly insisted that tariffs are coming on Canada and Mexico, despite both countries seeking to address his stated concerns about illegal border crossings and the smuggling of fentanyl. But the Republican president is also motivated by the idea that tariffs would force other countries to “respect” the United States.
“We’re going to immediately install massive tariffs,” Trump said in a Monday speech, adding, “Colombia is traditionally a very, very strong-willed country,” but it backed down rather than face import taxes.
Tariffs are a risk, but the Trump White House says it’s looking at the big picture.
Multiple economic analyses show that universal tariffs against Canada and Mexico risk more inflation and an economic slowdown. It’s a much larger play than Trump’s moves against Colombia, which accounts for roughly 0.5 per cent of US imports.
By contrast, nearly 30 per cent of all US imports hail from Canada and Mexico, amplifying the risk that tariffs could fuel inflation and undermine Trump’s campaign promises to get prices under control.
Trump’s director of the White House National Economic Council, Kevin Hassett, dismissed these concerns. He said the sceptical analyses of tariffs don’t look at the totality of Trump’s promises.
“When the people who are trying to cause panic over President Trump’s trade policy simulate what it’s going to do, they don’t account for all the other policies,” Hassett said in a Monday interview on the Fox Business Network. “So President Trump is drill, baby, drill, and deregulate and tax cuts and reduce spending.”
After Trump’s initial threat of 25 per cent tariffs in November, Mexican President Claudia Sheinbaum suggested Mexico could retaliate with tariffs of its own. Since then, she has been more measured, choosing to emphasise the strong bilateral relationship and willingness to engage in dialogue as the number of detentions at the US-Mexico border has plunged.
Sheinbaum pointed out in November that drugs were a US problem but in December the Mexican military seized more than a ton of fentanyl pills in two raids, calling it the biggest catch of synthetic opioids in Mexico’s history.
On Monday, Sheinbaum applauded the agreement reached by the Trump administration and Colombia.
“I believe the important thing, as I said on the first day, is to always act with a cool head, defending each country’s sovereignty and the respect among nations and peoples,” she said.
Top Canadian ministers said last week that Canada was prepared to retaliate if Trump imposed import taxes, even as Canadian Foreign Minister Mélanie Joly said they “will continue to work on preventing tariffs”.
The working theory in Canada appears to involve being ready for anything that the US president might do.
On Monday, the economics division of the insurance company Nationwide estimated that Trump’s proposed tariffs on Canada and Mexico would increase inflation by as much as 0.5 percentage points and pull down growth by 0.7 percentage points.
The analysis noted it did not “account for potential retaliatory tariffs from Canada or Mexico, which could amplify the deleterious impact on inflation and GDP growth”.
Trump has made lower gasoline prices one of his key strategies for tackling inflation, but tariffs on Canada could drive up prices at the pump unless Trump creates carveouts in his plan.
“For example, 60 per cent of oil and gas imports come from Canada,” said Oxford Economics’ Martin. “A 25 per cent tariff would lead to higher gasoline, diesel, and petroleum product prices for households and firms, especially in the Midwest and Rocky Mountain regions, where refineries are connected to Canada by pipeline.”
The tax services firm PwC looked at the possible impact of 25 per cent tariffs and found that companies importing from Canada could have to pay USD 106 billion more annually in import taxes and those importing from Mexico could owe USD 131 billion more.
“When we think about hardest-hit industries, we think about transportation and automotive,” said Chris Desmond, a principal at PwC’s international trade practice. “The amount of companies that have operations in Mexico and Canada in that industry with components and parts as well, including even airplanes that’s going to be a huge hit.”
Desmond estimates that taxes paid on imports in the transportation sector from all of Trump’s tariff plans, which include new taxes on China and other countries, could increase from USD 4 billion a year to USD 68 billion. It’s unclear how companies would absorb those costs or possibly pass them along to consumers.
None of those analyses is at the forefront of Trump’s public thoughts. His argument is that tariffs would make the US wealthy by sheltering it from competition and safer because they could be tools to force other countries to reduce illegal immigration.
“Tariffs, I told you, most beautiful word in the dictionary,” Trump said on Monday as he recalled his campaign speeches praising the import taxes. He reminisced in that speech how he was criticised for praising the term, prompting him to conclude that tariff is, in fact, the fourth most beautiful word after “God, love, religion.” (AP)
