US President Donald Trump was expected to unveil fresh tariffs yesterday on major trading partners Canada, Mexico and China, threatening upheaval across supply chains from energy to autos and raising inflation concerns.
Trump has promised to impose 25 percent tariffs on immediate neighbors Canada and Mexico, pointing to their failure to stop illegal immigration and the flow of fentanyl across US borders.
He also vowed a 10 percent rate on imports from China, the world’s second-biggest economy, charging that it had a role in producing the drug.
Photo: Reuters
The US runs “big deficits” with all three countries too.
However, imposing sweeping tariffs on the three biggest US trading partners carries risks for Trump, who swept to victory in November’s election on the back of public dissatisfaction over costs of living.
Higher import costs would likely “dampen consumer spending and business investment,” EY chief economist Gregory Daco said.
He expects inflation would rise by 0.7 percentage points in the first quarter this year with the tariffs, before gradually easing.
“Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric,” he said.
Trump’s supporters have downplayed fears that tariff hikes would fuel inflation, with some suggesting his policy plans involving tax cuts and deregulation could help fuel growth instead.
Democratic US lawmakers criticized Trump’s plans with US Senate Minority Leader Chuck Schumer saying on Friday that “I am concerned these new tariffs will further drive up costs for American consumers.”
Canada and Mexico are major suppliers of US agricultural products, with imports totaling tens of billions of dollars from each country in a year.
Tariffs would also hit the auto industry hard, with US light vehicle imports from Canada and Mexico last year representing 22 percent of all vehicles sold in the country, S&P Global Mobility said.
It added that automakers and suppliers also produce components throughout the region, meaning tariffs would likely increase costs for vehicles.
“We should be focused on going hard against competitors who rig the game, like China, rather than attacking our allies,” Schumer said in a statement.
Canada and Mexico have said they are prepared to respond if Trump acts on tariffs, raising the specter of an escalating conflict.
However, White House press secretary Karoline Leavitt on Friday dismissed concerns of a trade war.
Canadian Prime Minister Justin Trudeau said that Ottawa is ready with “a purposeful, forceful, but reasonable, immediate response.”
“It’s not what we want, but if he [Trump] moves forward, we will also act,” he said.
Mexican President Claudia Sheinbaum said her government would await any tariff announcement “with a cool head.”
“We have a plan A, plan B, plan C for whatever the US government decides,” she said, without giving details.
Hiking import taxes on crude oil from countries like Canada and Mexico could also bring “huge implications for US energy prices, especially in the US midwest,” according to David Goldwyn and Joseph Webster of the Atlantic Council.
Trump previously said he was considering an exemption for Canadian and Mexican oil imports, and on Friday added he was mulling a lower rate on oil.
“I’m probably going to reduce the tariff a little bit on that,” he told reporters.
“We think we’re going to bring it down to 10 percent,” he added.
About 60 percent of US crude oil imports are from Canada, the Congressional Research Service said.
Canadian heavy oil is refined in the US, and regions dependent on it might lack a ready substitute.
Canadian producers would bear some impact of tariffs, but US refiners would also be hit with higher costs, said Tom Kloza of the Oil Price Information Service.
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