WASHINGTON (AFP) – With less than 24 hours before President Donald Trump’s deadline to impose sweeping tariffs on the three biggest United States (US) trading partners – Canada, Mexico and China – the global economy is bracing for impact.
Shortly after taking office this month, Trump said he planned to introduce 25 per cent tariffs on neighbours Canada and Mexico today unless they cracked down on illegal migrants crossing the US border and the flow of deadly fentanyl.
He added that he was eyeing an additional 10 per cent duty on Chinese goods as soon as today as well.
On Thursday, he reiterated his commitment to levies on all three countries. Later that day, he also re-upped threats of 100 per cent tariffs on BRICS nations – a bloc including Brazil, Russia, India, China and South Africa – if they create a rival to the US dollar.
Fentanyl, many times more powerful than heroin, has been responsible for tens of thousands of overdose deaths a year. Canada has countered that below one per cent of undocumented migrants and fentanyl entering the US comes through its northern border.
JPMorgan analysts believe the promise of tariffs are “a bargaining chip” to accelerate the renegotiation of a trade deal between the US, Mexico and Canada.
“However, potentially dismantling a decades-long free-trade area could be a significant shock,” said a recent JPMorgan note.
One lesson from Trump’s first term was that policy changes could be announced or threatened on short notice, it added.
Tariffs are paid by US businesses to the government on purchases from abroad and the economic weight can fall on importers, foreign suppliers or consumers.
Assistant Professor at Cornell University Wendong Zhang said Canada and Mexico would suffer the most under 25 per cent US tariffs and proportional retaliations from both countries.
“Canada and Mexico stand to lose 3.6 per cent and two per cent of real GDP respectively, while the US would suffer a 0.3 per cent real GDP loss,” he added.
Blanket US tariffs and Ottawa’s response in kind could cause Canada to fall into a recession this year, Tony Stillo of Oxford Economics told AFP, adding that the US also risks a shallow downturn.
Mexico could face a similar situation, Tim Hunter of Oxford Economics added.
It remains unclear if there could be exceptions, with Trump saying he expected to decide whether to include crude oil imports in tariffs on Canada and Mexico.
Canada and Mexico supplied more than 70 per cent of US crude oil imports, with almost 60 per cent of such US imports from Canada alone, said a Congressional Research Service report. Stillo noted that heavy oil is “exported by Canada, refined in the US, and there aren’t easy substitutes for that in the US”.
US merchandise imports from both countries largely enter duty free or with very low rates on average, said the Peterson Institute for International Economics (PIIE). A tariff hike would shock both industrial buyers and consumers, cutting across everything from machinery to fruits, a PIIE report added on Thursday.
This week, Canadian officials said Ottawa would provide pandemic-level financial support to workers and businesses if US tariffs hit.
Prime Minister Justin Trudeau added on Wednesday that Ottawa was working to prevent the levies and stood ready to issue a strong response.
Mexican President Claudia Sheinbaum said she was confident her country could avoid the levy.
Trump’s commerce secretary nominee Howard Lutnick said on Wednesday “there will be no tariff” if Canada and Mexico acted on immigration and fentanyl.
Trump still eyes fresh tariffs on Chinese goods too, saying on Thursday he was mulling them.
Beijing has vowed to defend its “national interests”, and a foreign ministry spokeswoman previously warned that “there are no winners in a trade war”.
On the election campaign trail, Trump raised the idea of levies of 60 per cent or higher on Chinese imports.
Isaac Boltansky of financial services firm BTIG expects to see “incremental tariff increases” on Chinese goods, with consumer goods likely to face lower hikes.
“Our sense is that Trump will vacillate between carrots and sticks with China, with the ultimate goal being some sort of grand bargain before the end of his term,” he said in a recent note.
