Trump pledges tariffs on Canada, Mexico, and China, raising trade tensions

On 25 November, US President-elect Donald Trump unveiled plans on Truth Social for significant tariffs on Canada, Mexico, and China, linking the measures to issues such as drug trafficking and trade imbalances.

He announced a 25 per cent tariff on imports from Canada and Mexico until they take stronger action to stem fentanyl trafficking and migrant crossings into the United States.

On China, he proposed an additional 10 per cent tariff on imports to pressure Beijing into halting the smuggling of fentanyl-related substances.

Tariff policies under Biden administration

The announcement follows earlier tariff increases under the Biden administration in May 2024. The Biden administration had imposed targeted tariff hikes on Chinese goods, including a doubling of tariffs on solar cells from 25 per cent to 50 per cent and a more than threefold increase in duties on lithium-ion batteries, rising from 7.5 per cent to 25 per cent.

Steel and aluminium imports also saw tariffs raised to 25 per cent, while medical equipment was subjected to new duties.

These selective tariffs reflected Biden’s broader strategy to support domestic industries and address trade imbalances, particularly with China.

While these measures were significant, Trump’s proposed tariffs represent a more sweeping approach, targeting a wider range of goods and focusing on fentanyl trafficking.

Potential USMCA violations

The tariffs on Canada and Mexico could contravene the US-Mexico-Canada Agreement (USMCA), a trade pact Trump helped implement in 2020 to ensure largely duty-free trade among the three countries. Experts suggest Trump’s threats might aim to force an early renegotiation of the agreement, which is scheduled for review in 2026.

William Reinsch, a former National Foreign Trade Council president, commented, “This strikes me more as a threat than anything else. If you keep hitting them in the face, eventually they’ll surrender.”

Canadian Prime Minister Justin Trudeau discussed the matter with Trump following the announcement. A source described the conversation as a “good discussion,” with plans to maintain dialogue. Mexico’s finance ministry defended USMCA, stressing its role in providing stability for investors and trade partners. In 2023, over 83 per cent of Mexico’s exports and 75 per cent of Canadian exports went to the United States.

China’s reaction and fentanyl concerns

China criticised Trump’s tariff threats, emphasising the mutual benefits of US-China trade cooperation. “No one will win a trade war or a tariff war,” said Chinese embassy spokesperson Liu Pengyu. He pointed to Beijing’s efforts to curb the flow of fentanyl precursors, including tighter regulations on key chemicals and joint investigations with US law enforcement. These measures, introduced after a 2023 agreement between Presidents Biden and Xi Jinping, reflect progress but have not eradicated the issue.

Fentanyl, a synthetic opioid, remains a leading cause of drug overdoses in the US. Trump accused both China and Mexico of insufficient enforcement, vowing additional tariffs to pressure compliance. Beijing countered that it had already tightened enforcement, dismissing Trump’s allegations as unfounded.

Economic and market impact

Trump’s announcement triggered immediate market responses. The US dollar rose 1 per cent against the Canadian dollar and 2 per cent against the Mexican peso, while Asian and European equity markets fell. Economists warn that the tariffs could disrupt supply chains, stoke inflation, and draw retaliatory measures from trade partners.

China, already grappling with a prolonged property downturn and weak domestic demand, could face further economic strain if US tariffs escalate. Analysts predict Trump’s trade measures may destabilise global markets, particularly as he considers broader levies of up to 200 per cent on car imports from Mexico.

Broader implications

Trump’s tariff strategy marks a return to protectionist policies reminiscent of 1930s-era trade measures. Economists caution that such tariffs are paid by importing companies, raising costs for consumers or cutting into corporate profits. Trump’s rhetoric, however, frames the tariffs as penalties paid directly by foreign nations.

As Trump prepares to take office, his tariff pledges signal contentious trade negotiations and potential economic upheaval. These measures will test the durability of international agreements like USMCA and strain relations with America’s largest trading partners, including China, Canada, and Mexico.