Washington (AFP) – The global economy is bracing for impact as US President Donald Trump’s deadline to impose sweeping tariffs on the three largest US trading partners — Canada, Mexico, and China — draws near. Trump said shortly after taking office that he planned to introduce 25 percent tariffs on neighbors Canada and Mexico on February 1, unless they cracked down on illegal migrants crossing the US border and the flow of deadly fentanyl. He is also eyeing an additional 10 percent duty for Chinese goods on Saturday, similarly over fentanyl.
While Trump has not specified tools for the new tariffs, analysts have suggested he could tap emergency economic powers — which allow the president to regulate imports during a national emergency. But this could be hindered by lawsuits. On Thursday, he reiterated commitment to levies on all three countries, while re-upping threats of 100 percent 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.
Beijing has rebuffed claims of its complicity in the deadly trade, while Canada has countered that below one percent of undocumented migrants and fentanyl entering the United States comes through its northern border. JPMorgan analysts believe tariffs are “a bargaining chip” to accelerate the renegotiation of a trade deal between the United States, 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. Another looming deadline is April 1, by which Trump has called for reviews including on trade deficits.
Wendong Zhang, an assistant professor at Cornell University, said Canada and Mexico would suffer the most under 25 percent US tariffs and with proportional retaliations. “Canada and Mexico stand to lose 3.6 percent and two percent of real GDP respectively, while the US would suffer a 0.3 percent 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 United States also risks a shallow downturn. Mexico could face a similar situation, Tim Hunter of Oxford Economics added.
It is unclear if there could be exceptions. Trump said he expected to decide Thursday whether to include crude oil imports in the new levies. Canada and Mexico supplied more than 70 percent of US crude oil imports, 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, PIIE added.
Canadian officials said Ottawa would provide pandemic-level financial support to workers and businesses if US tariffs hit, vowing their readiness to respond. Mexican President Claudia Sheinbaum said she was confident her country could avoid the levy. But Trump’s commerce secretary nominee Howard Lutnick said Wednesday “there will be no tariff” if Canada and Mexico acted on immigration and fentanyl.
Trump is also mulling more tariffs on Chinese goods. White House spokeswoman Karoline Leavitt told reporters this week: “The president has said that he is very much still considering that for February 1st.” 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 percent or higher on Chinese imports.
Isaac Boltansky of financial services firm BTIG expects “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.
© 2024 AFP
