After re-establishing his presidency, US President Donald Trump has resumed his protectionist trade policies. The new presidential decree he signed, which will impose additional tariffs on imports from Canada, Mexico and China, directly targets three of the biggest players in global trade. The US administration has begun to impose an additional 25% tariff on goods imported from Canada and Mexico, and a 10% tariff on products coming from China. The White House statement emphasized that the main reasons for this decision are to reduce the US foreign trade deficit, control illegal immigration and combat drug trafficking. However, as a result of the negotiations, the Trump administration announced that it has postponed the tariffs to be applied to Canada and Mexico for one month.
The US President stated that this decision was made after last-minute negotiations with Mexican President Claudia Sheinbaum and Canadian President Justin Trudeau. While Mexico has agreed to send 10,000 soldiers to the US-Mexico border, Canada and Mexico have promised to take stricter measures against drug trafficking and border security. Trump said this decision would help prevent fentanyl smuggling and the flow of irregular immigration. Canadian President Justin Trudeau announced on social media that Canada will spend $1.3 billion to strengthen its border.
This investment includes new helicopters, technology and personnel, as well as additional resources to stop the flow of fentanyl. Canada announced a $1.3 billion spending on these border and immigration policies at the end of last year. How much these decisions will benefit the US economy is still a big question mark. The moves made with the aim of protecting domestic producers are expected to lead to serious cost increases in sectors that are dependent on imports. The automotive, energy and agricultural sectors in particular are among the areas that will be most affected by the tariffs.
The US trade deficit has reached serious levels in recent years. The total US foreign trade deficit will exceed $1 trillion in 2023. Moreover, this deficit is largely due to the trade imbalance with Canada, Mexico and China. According to the US Department of Commerce data, trade figures with these three countries are as follows: Canada: $440.9 billion in exports and $481.6 billion in imports in 2023. Trade deficit: $40.7 billion. Mexico: $367.2 billion in exports and $529.3 billion in imports. Trade deficit: $162.1 billion. China: $195.5 billion in exports and $447.7 billion in imports. Trade deficit: $252.2 billion.
A very large portion of Canada and Mexico's exports go to the US market. 77.6% of Canadian exports and 79.6% of Mexican exports are to the US. This shows that tariffs can directly harm the Canadian and Mexican economies.
China has decided to impose a 15% tariff on coal and liquefied natural gas (LNG) imported from the US in response to the 10% tariffs imposed by the US on Chinese goods. In addition to these taxes, the Chinese Ministry of Finance announced that it will also impose new tariffs of 10% on crude oil, agricultural machinery, large-engine vehicles and pick-up trucks coming from the US. This move shows that China is not backing down from the US’s protectionist trade policies.
The new tariffs will hit the automotive, energy and agricultural sectors the hardest. 70% of light vehicles manufactured in Canada and Mexico are sold to the US. In addition, since most vehicles manufactured in the US contain parts of Canadian and Mexican origin, the additional tax on these components will increase vehicle prices in the US. The energy sector is also directly affected by the tariffs. Canada is the largest supplier of crude oil to the US. Crude oil exports from Canada to the US reached $143 billion in 2023. Although the Trump administration has imposed a lower tariff (10%) on crude oil, it is anticipated that these additional costs will increase refinery prices and create imbalances in the energy market.
The tariffs will require an additional $100 billion in U.S. taxpayers, according to a Tax Foundation report. Agricultural trade between Canada and the U.S. is also under pressure. Between 86% and 96% of Canada’s agricultural and forestry exports go to the U.S. market. The sector could be seriously damaged, as it will be difficult for Canada to find alternative markets for these goods.
Approximately 80% of Mexico and Canada’s exports go to the U.S. They export goods from many different industries (machinery, health equipment, fruit and vegetables). We can say that both economies will suffer from these tariffs. It would not be wrong to say that the sector that will be most affected in Mexico is the automobile sector. It ships more than 2.5 million cars a year to the U.S. alone. This accounts for 80% of its annual production.
According to Bloomberg Economics, a 25% tariff on imports covering the most traded product groups is also likely to cause Mexico’s GDP to fall by about 16%. Canada’s biggest blow will be the energy sector, which sends 80% of its oil exports south. On the other hand, when we look at China, the US share in its $3.38 trillion total exports is 15%. There is no doubt that the tariffs will affect the Asian giant, but it is also obvious that they will not affect the Asian giant as much as they will affect Canada and Mexico.
