Trump pulled the trigger on tariffs, especially Mexico and Canada, but some details are missing. We find out later today. Spotlight Canada and Mexico, Not ChinaTrump is lashing out at Mexico and Canada in the Dumbest Trade War in History.
President Trump will fire his first tariff salvo on Saturday against those notorious American adversaries . . . Mexico and Canada. They’ll get hit with a 25% border tax, while China, a real adversary, will endure 10%. This reminds us of the old Bernard Lewis joke that it’s risky to be America’s enemy but it can be fatal to be its friend.
Drugs may be an excuse since Mr. Trump has made clear he likes tariffs for their own sake. “We don’t need the products that they have,” Mr. Trump said on Thursday. “We have all the oil you need. We have all the trees you need, meaning the lumber.”
Actually, we don’t have all the oil we need, at least in a form we can use. I will do a separate post on this idea and what we should do about it.
Mr. Trump sometimes sounds as if the U.S. shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in, or one that we should want to live in, as Mr. Trump may soon find out.
Take the U.S. auto industry, which is really a North American industry because supply chains in the three countries are highly integrated. In 2024 Canada supplied almost 13% of U.S. imports of auto parts and Mexico nearly 42%. Industry experts say a vehicle made on the continent goes back and forth across borders a half dozen times or more, as companies source components and add value in the most cost-effective ways.
And everyone benefits. The office of the U.S. Trade Representative says that in 2023 the industry added more than $809 billion to the U.S. economy, or about 11.2% of total U.S. manufacturing output, supporting “9.7 million direct and indirect U.S. jobs.” In 2022 the U.S. exported $75.4 billion in vehicles and parts to Canada and Mexico. That number jumped 14% in 2023 to $86.2 billion, according to the American Automotive Policy Council.
Tariffs will also cause mayhem in the cross-border trade in farm goods. In fiscal 2024, Mexican food exports made up about 23% of total U.S. agricultural imports while Canada supplied some 20%. Many top U.S. growers have moved to Mexico because limits on legal immigration have made it hard to find workers in the U.S. Mexico now supplies 90% of avocados sold in the U.S. Is Mr. Trump now an avocado nationalist?
Tariffs Loom Saturday, Some Details MissingThe Tariffs Loom Saturday but there are still some details missing.
The U.S. will impose tariffs on computer chips, pharmaceuticals, steel, aluminum, copper, oil and gas imports as soon as mid-February, President Trump said Friday, opening a new front in his looming second-term trade wars.
“That’ll happen fairly soon,” Trump told reporters in the Oval Office, adding that he also wants to hike tariffs on the European Union, which has “treated us so horribly,” though he didn’t specify when or how high the duties would be. A representative for the European Union didn’t immediately respond to a request for comment.
The announcement for those sector-based and EU tariffs appeared separate from the 25% tariffs on Canada and Mexico, and 10% tariffs on China, which he had said would be implemented Saturday.
The duties previewed by Trump would come on top of existing tariffs on those products, he said, waving away any concern about the levies increasing inflation or snarling global supply chains.
“I think there could be some temporary, short term disruption and people will understand that,” Trump said. “The tariffs are going to make us very rich and very strong.”
Very Rich and Very StrongIf tariffs made countries very rich and very strong then every country would respond in kind.Since tariffs are a tax on consumers, the logical assumption is taxes (at least some kinds of taxes) make us rich and strong.The ultimate result of everyone being rich and strong would be no one importing or exporting anything they could conceivably make or grow themselves. Some Exemptions
White House press secretary Karoline Leavitt on Friday said the Mexico, Canada and China tariffs were coming but declined to speak on exemptions for certain products or what, if anything, the trading partners could do to avoid the duties. Trump’s team has also been considering a grace period between the announcement of the tariffs on Saturday and when they would actually be imposed. Leavitt seemed to play down that possibility on Friday, telling reporters Trump “will implement his tariffs tomorrow.”
Trump told reporters in the Oval Office that there was nothing Canada, Mexico and China could do to avoid the tariffs before Saturday. But he did say he was considering a lower tariff on Canadian crude oil—10% instead of 25%.
For weeks, large U.S. industries such as the oil and automotive sectors have lobbied him for exemptions from the tariffs, warning of higher prices and continental-wide supply-chain issues, while Canada and Mexico have prepared a list of retaliatory measures to hit U.S. products with tariffs in kind.
The China tariff threat, meanwhile, has flown under the radar compared with the North American tariff pledges. While Trump said earlier this week that he was still considering duties on the world’s second-largest economy, he has rhetorically targeted Canada and Mexico much more often, and his team had appeared to have less contact with Chinese diplomats than officials from the U.S.’s continental neighbors.
Stopping the Drug Trade
U.S. Customs and Border Protection reported that last fiscal year 21,148 pounds of fentanyl was seized at the southwest border, the most from U.S. citizens coming through legal ports of entry. On the northern border, CBP reported seizing 43 pounds of the drug.
Throughout the process, Mexican and Canadian officials have expressed frustration that they don’t know what actions would satisfy Trump’s demands, despite weeks of meetings between senior officials. Indeed, the looming tariff announcement Saturday would follow the White House saying publicly this week that negotiations were progressing well with both nations.
Mexican President Claudia Sheinbaum, meanwhile, said her government is ready for Trump’s tariffs and would respond in kind.
“We have Plan A, Plan B, Plan C for whatever the U.S. government decides,” Sheinbaum said. “It’s important to remember the implications that imposing tariffs could have for the U.S. economy.”
Of the 21,191 pounds of fentanyl crossing the border, 43 pounds are from Canada.Damn, we need a wall with Canada too. National Security Nonsense
The president hasn’t said which legal authorities would be used to impose the tariffs. Trump advisers had considered using emergency economic authority to impose the sanctions, but The Wall Street Journal earlier reported that aides have second-guessed that strategy after a federal judge temporarily blocked a Trump administration memo seeking to freeze federal assistance grants and loans.
While the U.S., Canada and Mexico have a standing free-trade agreement, it isn’t clear that the expected tariff action would immediately violate that pact. The U.S.-Mexico-Canada Agreement, like most trade pacts, includes a provision that allows for the imposition of tariffs on national-security grounds.
How Much Will This Cost You?The Wall Street Journal discussed cost in its post Tariff Threat Prompts Automakers to Find New Suppliers, Consider Higher Prices
U.S. car buyers on average would face price increases of roughly $3,000, according to estimates from analysts at Wolfe Research. Buyers of new cars paid about $46,200 on average in December, according to J.D. Power.
Already, an affordability crunch in the U.S. car market has relegated many shoppers to the used-vehicle lot. Car prices in the U.S. soared earlier this decade because of vehicle shortages, and they remain roughly one-third higher than they were before the pandemic.
There have been down-to-the-wire negotiations between the U.S. and Mexico and Canada over the tariffs. Auto-company lobbyists have been pressing for exemptions or a narrower scope should the tariffs go into effect. For now, many companies are planning for the worst-case scenario.
Tariffs would upend the past three decades of the auto industry using free-trade rules and knitting together a vast factory web across the U.S., Mexico and Canada.
Now, some are rushing orders to beat this weekend’s potential deadline. GM, for example, is expediting vehicle imports from Canada and Mexico and has factory space to shift some work to the U.S., if needed. But the company says it won’t spend significant capital until it has more clarity.
Others are drawing up plans to source supplies from trade-friendly countries such as Thailand in case Mexico or Canada retaliates with their own tariffs.
When President Trump first floated the idea in November of placing tariffs on imports from the U.S.’s two top trade partners—despite a free-trade pact that has been in place for decades—many auto executives dismissed it as a negotiating tactic.
Jerome Dorlack, CEO of Dublin, Ireland-based seat maker Adient, told analysts on Tuesday that conversations with the automakers have begun. The company has 18 sites in Mexico and 30 in the U.S., according to regulatory filings.
“We’ve made it clear to them that this is not, at a 25% level or even at a 10% level, a burden that Adient is prepared to take on,” he said.
Mikael Bratt, CEO of Swedish airbag-maker Autoliv, which has factories in Canada and Mexico, put it bluntly during an earnings call Friday: “Of course, that’s a pass on to our customer,” he said of the prospective tariffs.
More than a quarter of GM’s U.S.-sold cars come from Mexico or Canada, including some of its most lucrative product lines. Last year, about half of the one million Chevrolet Silverado and GMC Sierra pickup trucks that GM made were built either in Canada or Mexico. A large majority of those trucks—the automaker’s top-selling models and biggest moneymakers—were shipped to the U.S. for sale.
Don’t worry according to Trump, Mexico will pay it. Trump’s Word Is WorthlessTrump bragged that the USMCA trade deal he negotiated with Canada and Mexico was the best trade deal in history.There is no reason to believe Trump will honor any deal that he makes. That’s something I have pointed out for weeks, and it’s the key reason I was skeptical he would act as foolish as he is.The one thing we don’t know, is how the markets and the economy will react to the certainty that no deal Trump negotiates is worth a damn.Trump’s treatment of allies will make us neither strong, nor rich, but it does prove Trump is untrustworthy. Seven Charts Show Tariffs Would Harm the US Auto IndustryYesterday, I noted Seven Charts Show Tariffs Would Harm the US Auto Industry
The CATO institute does a great job explaining why tariffs on Canada and Mexico would be a very bad idea.
New Tariffs on Computer Chips and SemiconductorsAlso note Trump Announces New Tariffs on Computer Chips and Semiconductors
It’s not like we can get advanced chips anywhere else. Thus, US customers will pay more than anyone else in the world for chips, and computers too.
How exactly is that supposed to help the US?
Welcome to the dumbest trade war in history.But that’s OK because Trump “Will Demand Interest Rates Drop Immediately”Nothing can possibly go wrong.More By This Author:The BLS Confirms US Is Now Losing Jobs In Net Business CreationGold Hits New Record High, Dear Jerome Powell, Is Everything Under Control?Seven Charts Show Tariffs Would Harm The US Auto Industry
