What's at Stake With America's Latest Trade War?

By FKlivestolearn | Technicity | 4 Feb 2025


As the U.S. escalates its trade war with key allies, mounting tariffs risk backfiring on American jobs, global supply chains, and economic stability.

What a day it turned out to be in financial markets. From chaos to uncertainty, to an astounding rebound - all in a day’s work. Perhaps we should get more used to such events, as the new U.S administration seems destined to upend the existing global economic order. And the main tool they intend to employ to achieve this is TARIFFS! Let’s unpack how it all transpired.

The mayhem started on Saturday when President Trump launched a trade war against three of its biggest trading partners—China, Canada, and Mexico—through a fresh wave of tariffs. His executive order imposed tariffs of 25% on imports from Mexico and Canada, with an additional 10% tariff on goods from China. These new levies targeted a vast spectrum of imports, from raw materials like crude petroleum to manufactured goods such as cars and electronics.

What the U.S. Aims to Achieve?

Beyond the stated goals of combating illegal immigration and drug trafficking, these tariffs serve a broader purpose - exerting economic pressure to bring manufacturing back to the United States. By increasing the cost of importing essential goods, the U.S. hopes to encourage domestic production, reduce trade deficits, and leverage its market power in renegotiating trade agreements.

However, this strategy is fraught with risks, as it not only alienates key trade partners but also triggers retaliatory tariffs that could boomerang on American industries.

Responses from Trading Partners

Canada, Mexico, and China were quick to respond with counter-tariff and other measures:

  • Canada had the harshest response announcing 25% tariffs on 155B Canadian dollars (USD 106B) worth of goods imported from the United States. These Canadian tariffs were to go into effect Tuesday - coinciding with the date the U.S. tariffs on Canadian goods were scheduled to take effect.

  • Mexico was also forceful but calculative. President Claudia Sheinbaum indicated she will develop a plan that may include tariffs on U.S. products, as well as non-tariff measures.

  • China, had a much more muted response, stating its intention to file a lawsuit against the U.S. with the World Trade Organization (WTO). China also said it will consider additional countermeasures against the U.S., although it did not announce any new tariffs at this time.

Temporary Pause

As expected, this trade war sent shock waves through the global financial markets. Across the board, risk-off sentiment sent stocks reeling, the dollar surging, cryptos tumbling, and oil rising. In this backdrop, Trump had conversations with his counterparts in Canada and Mexico. The latter was the first to get a reprieve from the punitive tariffs for 30 days, with Canada getting the same time later in the day.

Although this is a welcome move, the U.S sword of tariffs still hangs over our heads - at least until a more permanent solution is found, or whatever Trump wants to achieve by this is materialized. For now, the financial markets are breathing a huge sigh of relief as risk assets rebound.

 

America's Trade Relationships

As seen in the infographic above, Canada, Mexico, and China are the top 3 export destinations, supporting millions of U.S. jobs and reflecting the importance of cross-border trade. The top exports included cars to Canada, refined petroleum to Mexico, and soybeans to China. Notably, the infographic mentions the potential job impact of retaliatory tariffs from these top trade partners, affecting over 4 million jobs.

The map on the right section of the infographic shows each U.S. state's top import partner, with Canada, Mexico, and China dominating as the primary sources of imports. The proposed tariffs could disrupt established trade relationships and supply chains, affecting both domestic economies and international trade dynamics.

Economic & Supply Chain Repercussions

Domestically, the U.S. economy faces multiple risks. The manufacturing sector, which relies heavily on imported components, will see rising production costs, potentially leading to layoffs and slower economic growth. For consumers, these tariffs translate into higher prices for everyday goods, from cars to electronics and groceries.

Globally, the tariffs are upending supply chains that integrate American companies with suppliers and manufacturers across North America and Asia. The automotive industry, for instance, is deeply dependent on a cross-border supply network, and disruptions here could lead to significant slowdowns in vehicle production and sales. Multinational corporations, wary of unpredictable U.S. trade policies, may divert investments to other regions, weakening America's position in global markets.

The Next Phase

The U.S. is not stopping with China, Canada, and Mexico. Trump has already hinted at tariffs against the European Union, the United Kingdom, and India. These measures, if enacted, could provoke another round of retaliatory tariffs, further isolating the U.S. from its traditional allies. The EU has already hinted at countermeasures should Washington proceed with protectionist policies, while India, a growing economic powerhouse, may pivot more aggressively toward trade agreements with China and Russia.

A Dangerous Game

America’s tariff strategy is a high-stakes gamble that risks economic stagnation, job losses, and strained global partnerships. While the official justification centers around national security concerns, the underlying motives suggest an attempt to reshape global trade dynamics in America’s favor.

However, the approach is likely to backfire, as major trade partners retaliate and global supply chains shift away from U.S. reliance. The world is watching as Washington escalates its trade war, and the coming months will determine whether this aggressive economic posture strengthens American industry or leads to a costly isolationist spiral.

Originally published at Substack.

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FKlivestolearn
FKlivestolearn

I am a prolific Blogger on Substack/Medium with a newsletter. Extensive trading experience in Forex & Stocks based on technical studies. Cryptocurrency trader and Enthusiast, Blockchain/Fintech Evangelist & generally just a Technology Freak.


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