The return of the trade war: Trump and the threat of tariffs

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His plan, for now, is the following: show that from the beginning he will solve the problem of illegal immigration – his big issue – and the fentanyl crisis – which kills more than 70 thousand Americans every year – threatening the most involved in it: Mexico and China. And on the rebound, to its northern neighbor, Canada.

Thus, starting next January 20, when he takes office, he would impose a 25% tax on all products entering from Mexico and Canada, and an additional 10% tariff on goods coming from China. According to the president-elect, the new tariffs would remain in effect “until drugs, particularly fentanyl, and all illegal aliens stop this invasion of our country.”

With globalization, free trade agreements have proliferated in recent decades in order to reduce, and even eliminate, tariffs and thus encourage global trade and consumption. But times are changing, and critics of ‘globalism’ are advocating protectionism for national industries, as Trump promotes because he believes that this will create more jobs in the country.

However, experts continue to point out that imposing tariffs has a marginal effect on employment and resource collection and, rather, produces inflation since companies pass that amount on to consumers, who end up paying more for a product.

“Imposing tariffs on trade flows to the United States without first preparing alternative sources for the affected goods and services will immediately raise the price of imported items,” notes a study by economists Carl B. Weinberg and Rubeela Farooqi, for High Frequency Economics. .

Another investigation by the Massachusetts Institute of Technology, the University of Zurich, Harvard University and the World Bank concluded that the tariffs that Trump imposed in his first term failed to restore jobs. For example, the taxes that were imposed on imported steel in 2018 did not contribute to creating more jobs in American steel mills, whose number remained at 140,000.

China again

Beijing had already been preparing for such an announcement. In fact, Trump had indicated during the campaign that he would impose 60% tariffs on all Chinese goods, but he has been much more conservative, for the moment. In the Republican’s first term, in 2019, the United States began its trade war with Beijing by establishing a series of tariffs, a strategy that Joe Biden did not modify in these four years, not only maintaining taxes on $360 billion in products Chinese, but by establishing a 100% tariff on Chinese electric vehicles, an area that Xi Jinping is betting on.

“For me, the most beautiful word in the dictionary is tariff. It’s my favorite word. The higher the tariff, the more likely companies will come to the US and build factories in the country.”

donald trump

For this reason, China will export much more to Southeast Asian nations from 2022 and has entered the Indian and Russian markets with great force (especially in the context of the war with Ukraine). In 2023, Chinese exports to the US fell by 13% and that market is the third, after the ASEAN block (Southeast Asia) and the European Union.

“No one will win a trade war. “The economic and trade cooperation between China and the United States is mutually beneficial in nature,” said the Chinese Embassy in Washington.

Fentanyl, however, is a fundamental concern for the United States, which considers that the Asian giant is the main supplier of the precursors used to manufacture the drug, which would enter, above all, through the Mexican border through the cartels. For Trump, tariffs are an instrument of pressure for both countries, despite the fact that in recent years there have been rapprochements in anti-drug cooperation.

As the newspaper El País points out, the 25% tariff for Mexico is also an indirect blow for China since many of its companies have moved factories and production to this country to avoid the economic barriers imposed by the United States.

The T-MEC in danger

The United States, Mexico and Canada have had a free trade agreement since 1994, which was renegotiated during the first Trump administration and was renamed USMCA. However, with the new tariffs that the president-elect intends to impose, he could throw this agreement overboard.

Canada, for example, is the main supplier of steel, aluminum and uranium to the United States and 60% of the oil imported by the first power comes from its northern neighbor. Therefore, Canadians fear that even 10% tariffs would cost them around 1% of their GDP, while 25% (what Trump has proposed) would lead Canada into a deep recession.

For its part, Mexico is the main trading partner of the United States and important North American companies have moved to Mexico, something that President Claudia Sheinbaum recalled in detail: “President Trump, it is not with threats or tariffs that the phenomenon is going to be addressed. immigration or drug consumption in the United States. Cooperation and reciprocal understanding are required.” In the letter he sent he also warned him that Mexico could respond with tariffs, something that would not be in the interest of both economies.

Regarding migrants, Sheinbaum pointed out that since December of last year, migration entering through the US border has been reduced by 75%. The figures from the US Customs and Border Protection Office agree with the Mexican president, since in October the Border Patrol made 56,530 arrests in October, the lowest level in four years, and a big difference compared to December 2023 when The figure reached 250 thousand arrests. In fact, since last June the numbers have decreased significantly since President Biden decided to close the border with Mexico to migrants seeking asylum upon reaching a limit on irregular crossings.

Although Sheinbaum and Trudeau spoke with Trump in recent days, in “wonderful” and “excellent” talks as they said publicly, it is impossible to know what Trump’s decision will be when the time comes. For now, what he is interested in is selling the idea that he pressured, negotiated and they listened to him before his second term begins.