On February 1, President Trump imposed 25% tariffs and 10% duties on energy products from Canada and Mexico, and 10% tariffs on China. The three countries are America’s greatest trade partners, and the United States has a trade deficit with each.
The Trump tariffs could cause Canada’s GDP to fall as much as 3%, while Mexico’s could suffer a 2% drop, by some estimates. A trade war between the U.S. and its two largest trading partners would also hit U.S. income, hurt employment and increase inflation.
Just two days after his tariff war proclamations, Trump took a back step. Following talks, levies against Canada and Mexico will be delayed for 30 days. But as Trump’s tariffs went into effect against China, Beijing announced a broad package of economic measures targeting the United States on February 10 – and more will follow if needed.
So, will Canadian Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum be talking about economics with the White House? Perhaps in part. But the Trump administration would also like to build a North American trade bloc against China.
Spheres-of-influence games in the Americas
The Trump tariffs are legitimized by a victimization narrative in which America is depicted as a target of wrongful economic and geopolitical measures. Consequently, the White House portrays itself in a rightful crusade and the rest of the world as prime destabilizers.
This time the tariff wars started with Trump’s heated exchanges with Colombian President Gustavo Petro. After Colombia refused to accept two U.S. military aircraft with Colombian citizens deported from the U.S., Washington threatened tariffs and sanctions on Bogota. Since the U.S. is Colombia’s largest trading partner, the potentially lethal battle ended with Colombia agreeing to accept deportees and Trump claiming victory.
The Colombian row was timed to take place before the major tariff wars with Canada, Mexico and China, as a demonstration effect to other trade partners, with the tacit message: "This is what will happen to you, too, unless you succumb."
Trump is playing tariff chess. The White House hopes to use geopolitics to force the two countries into a U.S.-controlled North American bloc to undermine China’s economic role in the Americas. Hence, too, Secretary of State Marco Rubio’s visit to Panama and President José Raúl Mulino’s decision to end a key development deal with China, to avoid Trump’s threat to retake Panama Canal and “many casualties” as Rubio warned.
As the victors of World War II divided Europe in Yalta in 1945, Trump is paving a new spheres-of-influence trajectory in which U.S. dominance would extend across Central America, from Mexico to Panama – into Colombia.
The fentanyl story
According to Trump, the Mexico and Canada tariffs were imposed because these countries had not halted migration and drug trafficking over U.S. borders. Both countries rushed to assuage Trump’s border concerns, yet only to face diffuse, lingering demands. These tensions are not due to economic causes. They are dictated by geopolitics.
Trump also continues to blame China over America’s fentanyl crisis. In the U.S., synthetic opioids (mainly fentanyl-related substances) may have resulted in over 78,000 U.S. overdose deaths between September 2022 and August 2023. Yet, China’s imposition of class-wide controls over all fentanyl-related substances changed trafficking patterns after 2019. According to congressional research, direct flows of such substances from China to the U.S. have largely ceased since then.
Again, according to congressional research, around 2019 Mexico, as a primary source of, and transit country for, illicit drugs destined for the United States, replaced China as the primary source of U.S.-bound illicit fentanyl, a synthetic opioid, and fentanyl analogues.
Yet, the U.S. government has unilaterally addressed China’s role in fentanyl and precursor trafficking. The U.S. administrations seem to favor foreign scapegoats over the cold realization that America has a decades-long drug crisis in which the primary problem is the lucrative demand.
So, what’s the rationale for the tariff wars with these three countries? Trump has pledged the duties will prevail until the three countries halt fentanyl smuggling and illegal migration. It was a stunning admission that the Trump tariff wars are not about economics but about the weaponization of unilateral economic coercive power.
Trump tariff failures in the past
Since 1950, tariffs have never accounted for much more than 2% of U.S. federal revenue; last year, the figure was 1.6%. Through these decades, Congress has delegated extensive tariff-setting authority to the President, who has been seen as more insulated from domestic protectionist pressures. Hence, the progressive decline in tariff rates. But those days are now gone.
In Trump's view, the low-tariff, rules-based global trading system works against America. So, in his first term, duties paid on U.S. imports doubled to $74 billion in 2020.
Since tariffs no longer have effective economic rationales, they are today used selectively to protect certain domestic industries, advance foreign policy goals, or as negotiating leverage in trade negotiations.
Attributing its tariff policies to the trade practices of U.S. trading partners and the U.S. trade deficit, the first Trump administration-imposed tariff increases under three U.S. laws:
● Section 232 of the Trade Expansion Act of 1962 on U.S. imports of steel and aluminum, presumably due to concerns over "national security";
● Section 201 of the Trade Act of 1974 on U.S. imports of washing machines and solar products, due to concerns over domestic U.S. industry;
● Section 301 of the Trade Act of 1974 on U.S. imports from China and from the European Union (EU), presumably due to intellectual property and subsidies concerns, respectively.
Ironically, Trump used the first law to shrink U.S. trade, whereas the Kennedy administration originally relied on it to expand trade. The two other laws were used in the U.S. against Japanese exports in the mid-‘70s, without success.
The objective of the Trump trade wars was to "bring jobs back to America." But that has not happened and can't happen with misguided economics.
Far bigger economic stakes
Half a decade ago, Trump tariffs on U.S. imports from China accounted for $396 billion or more than 90% of the trade affected. However, the first round of the Trump tariffs with Canada, Mexico and China would cover far more trade in dollar value.
Trump’s four tranches of tariffs on Chinese goods in 2018-19 covered imports valued at $360 billion at the time. Today, Canada, Mexico and China supply more than two-fifths of all U.S. imports. New tariffs on the two countries plus additional tariffs on China could cover imports valued at over $1.3 trillion in 2023.
That's over 3.5 times more than half a decade ago. And it is just the opening salvo in a series of U.S. tariff moves that are anticipated in the coming weeks. Factor in the potential/likely retaliation rounds by U.S. tariff targets and the final toll could prove far, far higher.
The second front of the trade wars could ensue in mid-February, when the Trump administration plans to impose tariffs on computer chips, pharmaceuticals, oil and gas imports, and steel, aluminum, and copper. The Trump administration is also hiking tariffs on the European Union, which has “treated us so horribly.”
And other trading powers with which the U.S. has a major trade deficit, including Germany, Japan, South Korea and Vietnam, could be next in the firing line.
Darkening global prospects
U.S. inflation, at 2.9% in December, is still running higher than the Federal Reserve’s 2% target. The Peterson Institute has estimated that U.S. inflation would be 0.54 percentage point higher with the tariffs this year than without.
The threatened wave of tariffs could worsen trade tensions, lower investment, hit market pricing, distort trade flows and disrupt supply chains, and undermine consumer confidence. And that’s just an overture for what could ensue in the next four years.
At first, tariffs, tax cuts and deregulation may seem to boost the U.S. economy. But they could set the stage for an inflationary boom followed by a bust. That’s when Trump’s economic policies “could hit the rest of the world, as the International Monetary Fund has warned.
