Donald Trump, the president-elect of the United States, has threatened to impose a 25 percent tax on all products entering the U.S. from Canada and Mexico and an additional 10 percent tariff on goods from China.
The announcement has sparked widespread global concern over their potential impact and the increasing trend of protectionism.
During his most recent meeting with Trump, Canadian Prime Minister Justin Trudeau described the talks as “an excellent conversation” but offered no substantial comments on the potential tariff policy.
No announcement was made regarding the possible withdrawal of the threatened tariffs.
In Mexico, President Claudia Sheinbaum warned of dire economic consequences, stating that Trump’s plan could lead to inflation and job losses in both countries.
“For every tariff, there will be a kind response until we put at risk our shared enterprises,” she said.
Sheinbaum noted that tariffs would jeopardize U.S. companies with plants in Mexico, including General Motors and Ford.
A report from S&P Global released on Friday further highlighted the potential damage, stating that U.S. and European carmakers could lose up to 17 percent of their combined annual core profits in a worst-case scenario if the U.S. imposes steep tariffs on Europe and key U.S. allies like Mexico and Canada.
The impact of tariffs was felt during Trump’s first term in office, particularly with the 2018-2019 tariff policies, which had numerous negative effects on the global trade system.
A 2019 U.S. Federal Reserve Beige Book revealed that many U.S. businesses were struggling with challenges arising from trade tensions. These included supply chain disruptions, increased costs due to tariffs, stockpiling to mitigate trade uncertainty, and pressure from clients to absorb tariff-related costs, which often led to reduced profit margins.
Global manufacturing also contracted in 2019 as a result of Trump’s tariff policy.
JPMorgan Global Manufacturing PMI, which rose slightly from 49.5 in August to 49.7 in September, remained below the 50-mark threshold for five consecutive months, signaling declining output across most businesses.
According to the Tax Foundation, the Trump administration imposed “nearly $80 billion worth of new taxes on Americans” by levying tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019. This amounted to one of the largest tax increases in decades, significantly impacting companies selling imported goods and multinational corporations.
President Joe Biden also criticized Trump’s proposed tariff policies, calling them “counterproductive.”
“I hope he rethinks it, and I think it’s a counterproductive thing to do,” Biden said.
In response to the looming tariff threat, a group of Democrats from various states introduced a bill, citing the added cost to American families.
Representative Suzan DelBene, one of the drafters, said, “Imposing sweeping tariffs on imported goods would raise prices on consumer products by thousands of dollars a year.”
She added that such tariffs would not only drive up costs at home and likely send the economy into recession but would also damage trade relationships with allies, likely leading to significant retaliation that would harm American workers, farmers, and businesses.
The Peterson Institute for International Economics echoed these concerns, estimating that Trump’s larger tariff proposals could cost the typical American household over $2,600 a year.
A 2023 U.S. International Trade Commission report further illustrated the negative effects, stating that U.S. importers bore the brunt of Section 232 and Section 301 tariffs between 2018 and 2021.
Section 232, for example, led to a 24 percent decline in steel imports, a 2.4 percent increase in steel prices, a 31 percent decline in aluminum imports, and a 1.6 percent increase in aluminum prices. While domestic production increased modestly, higher input costs severely impacted downstream industries.
Trump’s tariff policies have raised significant concerns about their potential to harm U.S. imports, disrupt the global supply chain, and jeopardize the economy. The risk of retaliation and escalating trade wars remains a key point of contention among global leaders.
As Liu Pengyu, the spokesperson for the Chinese Embassy in Washington, has stated, China believes that China-US economic and trade cooperation is mutually beneficial in nature.
“No one will win a trade war or a tariff war,” he said.