Trump's tariffs on China, Canada and Mexico: What would be the effects?
The president-elect of the US has announced tariff increases of up to 25% on goods imported from its neighboring countries. Behind this move lies the debate over migration and drug trafficking.
Carbon tax is off the agenda, but trade tariffs are most definitely on. In an announcement on Monday 25th November, Donald Trump declared his priority on entering office would be to introduce an immediate 25 percent tariff on goods entering the US from Canada and Mexico, with an additional 10 percent on goods from China.
In a post on his own social media network Truth Social, the president-elect announced: “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.”
Doomed to fail?
Who pays for the tariff? It's a strategy many economists say will harm American consumers more than anyone else — but it’s one that Trump seems determined to see through.
“These measures are at the core of the new president's agenda, who considers the word ‘tariffs’ the most beautiful in the English language,” says José M. de Areilza, Esade professor and Jean Monnet-Esade chair.
The markets were quick to reflect the impending changes following the announcement of Trump’s tariff plan: the US dollar index rose by 0.4 percent, while the tariff-threatened countries didn’t fare so well. The Canadian dollar fell 0.8 percent, the Mexican peso was down 1.3 percent and China experienced a 0.1 percent fall in the onshore renmini.
But as a long-term strategy for US growth, increasing tariffs is doomed to fail, at least if we stick to economic orthodoxy: “He wants to lower taxes and fund public spending with tariffs, but we know this is a strategy that doesn’t work and leads to hyperinflation,” says Areilza.
Mexico is a crucial partner for the US economy within a free trade area negotiated by Trump himself
State leaders responded to Trump’s announcement in a similarly pessimistic manner. Chinese state media called the move “a mutually destructive tariff war”, while Mexico’s President Claudia Sheinbaum called the threat “unacceptable” and agreed that it would lead to inflation and job losses in both the United States and Mexico.
A more pragmatic Prime Minister Justin Trudeau said, in response to Trump’s tariff on Canada, that he was ready to work in “constructive ways". "This is a relationship that we know takes a certain amount of working on, and that's what we'll do," he added.
War on drugs
However, the introduction of tariffs isn’t simply an economic measure. As the president-elect explained in his Truth Social post, the increase in levies is aimed at preventing drugs and ‘illegal aliens’ crossing United States borders.
“This tariff will remain in effect until such time as drugs, in particular Fentanyl, and all illegal aliens stop this invasion of our country!” he announced. “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
Trump has not announced 60% tariffs on Chinese products, as he had promised during the campaign, but much lower ones
China has also come in for criticism for the drugs being sent across the Mexican border into the US. Sharing his disappointment that a promised death penalty for Fentanyl dealers hasn’t materialized, Trump continued: “Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our country, mostly through Mexico, at levels never seen before.
“Until such time as they stop, we will be charging China an additional 10% tariff, above any additional tariffs, on all of their many products coming into the United States of America.”, he added. This 10% increase would be in addition to existing tariffs on a multitude of products imported from China.
According to Areilza, it's interesting to note that Trump has not announced 60% tariffs on Chinese products, as he had promised during the campaing, but much lower ones. “Within his circle, there is an ongoing debate about how this relationship with the Asian superpower should be managed, with at least three diverging opinions: collaboration, confrontation, or simply US withdrawal and isolationism”, he says. As the Esade professor states, this is a key issue for global stability that will ultimately be decided by Trump himself.
Protectionism ‘Made in the US’
Trump’s approach to protecting US interests isn’t new in a theoretical sense: protectionism has long formed the bedrock of US trade policy and has also been embraced by Biden’s administration. But where Biden negotiated deals with predictability and diplomacy, Trump’s messaging comes across as more of a warning shot.
By tying tariffs to migration and drugs, Trump’s approach suggests he’s geared up for confrontation rather than classic diplomacy
“The outgoing Democrats didn’t view relationships with other countries as a zero-sum game, as Trump does,” Areilza explains. “The tariffs announced against Mexico are particularly concerning. Mexico is a crucial partner for the US economy within a free trade area negotiated by Trump himself.”
The confrontational approach also signals bad news for the European Union: the strong relationship between Trump and Hungary’s President Viktor Orbán has the potential to weaken the EU’s defense, economy — and even democracy itself. “A triple shock for the EU”, says Areilza.
Strongmen of Europe
“Trump does not view European integration positively,” warns Areilza. “His partnership with Viktor Orbán — Vladimir Putin's Trojan horse — is legitimizing and normalizing the leadership of so-called strongmen.”
Trump has praised Orbán as “one of the most respected men,” “strong”, “a tough person” and “smart”, while Orbán has declared Trump “a friend of Hungary”. The media outlet Hungarian Conservative went further, announcing: “With Donald Trump’s victory, Hungary has gained its most important ally, which could enhance its influence in Europe and within the EU.”
By tying tariffs to migration and drugs, Trump’s approach suggests he’s geared up for confrontation rather than classic diplomacy. Whichever trade route the president decides to take — and social media posts don’t always translate into policy — one thing seems certain: decoupling the US economy from the rest of the world is bad news for global stability.