A Fact Sheet posted by the White House has emphasized addressing “an emergency situation” of the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, constitutes a national emergency under the International Emergency Economic Powers Act (IEEPA)."
It states that until this crisis has been dealt with adequate responses, President Trump is implementing tariffs of an additional 25% on Canada as well as Mexico’s imports, and an additional tariff of 10% on China’s imports. The fact sheet went on to say that prior administrations had failed to use America’s economic position as a means to “secure our borders against illegal migration and combat the scourge of fentanyl, preferring to let problems fester.”
The US’s trade relations with Canada, Mexico, and China accounts for 67% of Canada’s GDP, 73% of Mexico’s GDP, and 37% of China’s GDP, and accounts for only 24% of the US’s GDP.
In an analysis of the economic impact of these tariffs between US, Canada and Mexico, the importance of these countries and their trade relations to one another are of foremost importance, with Canada and Mexico as the US’s largest export markets, and the US being the largest export market for Canada and Mexico. Exports between the three countries sustain over 17million jobs.
Canada and Mexico are preparing for a retaliatory response of tariffs to which Trump stated there would be an increase in the US tariffs accordingly.
Focusing on the simulation of the outcome under the scenario in which Canada and Mexico does retaliate with tariffs (25% in this model), the result of this will be expected to occur over the “medium term”. Canada and Mexico are to be severely impacted by any scenario in which these tariffs have been imposed, whether they choose to retaliate or not, due to the large shares of their trade lies with the US (78% of Canada’s exports and 83% of Mexico’s exports).
Although the adversity of these tariffs will not be as severe in comparison to Mexico and Canada, it will, however, affect Trump’s administrative goal of competing with China by having prominent supply chains.
The frivolity of these tariffs and their inconsistencies with the United States-Mexico-Canada Agreement (USMCA) render any further agreements with the US as unreliable and flimsy.
Without retaliation, US’s GDP growth is expected to fall by 0.25% points and with retaliation, GDP growth would be reduced by 0.3% points.
It will affect the employment scale of Canada, Mexico and the US:
Employment decline of 0.11% from the 25% tariffs on imports and it will become 0.25% with retaliation.
Employment loss in Canada and Mexico would be about 1.3% and 2.3%, respectively and in the event of retaliation, it would be rise to around 2.5% and 3.6%.
These tariffs will also cause lower wages in all three countries. And notably, the effect the tariffs will have on inflation. Without retaliation, the rise in inflation would be at 1.3% or more, and with retaliation, the increase would be at a minimum of 0.8% but significant enough to slow down the economic growth of the US. President Trump might hope to deal with by beginning a bidding war on tariffs until the receivers give in, as these tariffs effect Canada and Mexico more drastically.
The 10% tariffs on Chinese goods had taken effect on Tuesday, which resulted in retaliation by Beijing. The trade war with China dates back with Chinese goods having already experienced such tariffs in Trump’s previous term between 2017 and 2021. The US’s main three major trade partners, Canada, Mexico and China “accounted for more than 40% of total goods traded, valued at more than $2 trillion.” China had retaliated with a 15% tariff on US coal and liquefied natural gas as well as a 10% tariff on crude oil and agricultural machinery and others that will take effect on February 10th.
“For now, Wall Street investors are also taking the countries' fresh trade sanctions in stride, betting that neither Mr. Trump nor Chinese President Xi Jinping are eager to start a mutually destructive economic war”, CBS news stated.