Trump Heralds Unease in Global Halls of Power With Tariff Threat
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Trump Heralds Unease in Global Halls of Power With Tariff Threat
Brian Platt, Maya Averbuch and Eric Martin
6 min read
(Bloomberg) -- All it took was a single social media post by Donald Trump for world leaders to plunge into response mode, US automaker stocks to tumble and investors to begin scrambling to assess potential economic impact.
And while the US president-elect’s threat on Truth Social to impose 25% tariffs on all goods from Mexico and Canada and 10% on products from China may ultimately prove to be a negotiating tactic, it sent a clear signal: While Trump hasn’t yet assumed the White House, the second Trump era has effectively begun.
President Claudia Sheinbaum of Mexico suggested her country could respond to the threatened tariffs with levies of its own, warning the economic consequences would be dire.
“One tariff will be followed by another in response, and so on until we put common companies at risk,” Sheinbaum said at her daily press conference.
For Canadian officials, the online post landed just as a special cabinet group meeting on US relations was wrapping up. Prime Minister Justin Trudeau was soon on the phone with Trump, working to assure the president-elect he’d heard the message — but also pointing out that the issues at the Canadian border are tiny compared to the US-Mexico border.
Still, Canada is not ruling out striking back. Finance Minister Chrystia Freeland, speaking to reporters Tuesday afternoon, pointed out that her government responded dollar-for-dollar when Trump imposed tariffs on Canadian steel and aluminum during his first term.
“The important thing is we got through it, and our response was successful,” Freeland said. “The reason we were able to do that is we were smart, we were united, we were strong.”
‘Most Beautiful Word’
Trump’s declaration follows a campaign in which he proclaimed that tariff is “the most beautiful word in the dictionary” and pledged repeatedly to enact sweeping new levies as a cornerstone of his economic agenda.
His announcement, then, didn’t land as a total shock in Mexico City or Ottawa. But it underscored a delicate task ahead for key US trading partners as they aim for economic stability and seek to keep ties with Washington from becoming frosty. Trump centered his threat on the countries curbing the flow of fentanyl and migrants into the US.
Mexico would have plenty to lose in the trade fight. At least 9 million jobs depend on exports to the US and to Canada, according to a recent Brookings Institution estimate. In a Tuesday report, Moody’s Analytics cut its Mexico gross domestic product outlook for 2025 to 0.6% from 1.3%, citing potentially decreased trade, lower foreign direct investment and a drop in remittances.
Canada, meanwhile, is the biggest oil supplier to the US. The two countries have one of the world’s largest bilateral trading relationships, worth about $2.6 billion in goods and services daily. Canada’s economy depends on its ability to sell energy, cars, minerals and other goods to the US. Its consumers and businesses also rely heavily on US-made imports.
Trevor Tombe, a University of Calgary economics professor, estimates a 25% tariff would shave off about 2.6% from real GDP annually. He predicted a recession in Canada next year.
On Tuesday, the peso weakened as much as 2.6% to 20.8 per dollar, the highest since August 2022, while the country’s main stock gauge dropped below 50,000 for the first time in a year. The Canadian dollar touched a four-year low.
In Sheinbaum’s Tuesday remarks, she cautioned that a tariff fight would serve to hurt some US companies, including major automakers General Motors Co. and Ford Motor Co., which have operated in Mexico for decades largely to export cars to US consumers.
Investors clearly saw the potential for the ripple effects she was warning about: Shares of each of those automakers fell on Tuesday, with tariffs threatening to risk increasing production costs for key models and push car prices out of reach for even more consumers. Some 2.3 million cars and light trucks were imported to the US from Mexico alone last year, according to researcher GlobalData. The levies also could increase auto insurance costs, since many replacement parts are imported.
The proposal of an additional 10% tariff on goods from China came after Trump had mused on the campaign trail about eye-popping 60% levies on that country.
Liu Pengyu, spokesman for the Chinese embassy in the US, earlier said Beijing had informed Washington of the progress made in counter-narcotics efforts and described as “mutually beneficial” economic and trade cooperation between both countries. “No one will win a trade war or a tariff war,” he wrote on X.
Opening Salvo
Yet markets overall were relatively sanguine, with one Wall Street strategist, Charlie McElligott of Nomura, putting his reaction this way: “zzzzzzz.”
That likely reflects the perception that Trump’s proposal is an opening salvo, not a line in the sand.
“These threats are viewed as warning shots,” said JonesTrading’s Mike O’Rourke.
Indeed, some Mexican business leaders have pointed out that, in 2016, Trump threatened to scrap NAFTA before eventually sitting at the negotiating table to craft the US-Mexico-Canada Trade Agreement. North American leaders have been scheduled in 2026 to review the terms of their free trade agreement, though the president-elect has threatened to reconsider the deal.
This time around, Trump and the people around him can draw on four years of experience to move with greater speed if a trade partner’s behavior isn’t to his liking.
“What Trump has always done quite well is impose the tariff and have everyone come hat in hand begging for their exclusion from the tariff,” said William Pellerin, an international trade lawyer and partner at McMillan LLP in Ottawa. “Absolutely there should be a way here to give Trump a win, save face, and not have that 25% tariff apply.”
Tariffs like the ones that Trump is proposing would be a violation of the USMCA trade deal that his first administration negotiated. Mexico wants to convince the Trump administration that North American cooperation to strengthen reliance on regional supply chains rather than China should be the goal of the three governments, according to the nation’s officials.
Jan Hatzius, chief economist at Goldman Sachs Group Inc., said that it’s also important not to conflate Trump’s tariff threat of 10% duties on China and 25% on Mexico and Canada to address fentanyl and migration with the more maximalist approaches he floated during his campaign that he sees as tools to rebalance trade toward the US. In other words: This may just be the beginning.
--With assistance from Gabrielle Coppola, Carolina Millan, Cyntia Barrera Diaz, Colum Murphy, Esha Dey, Derek Decloet, Laura Dhillon Kane, Randy Thanthong-Knight, Keith Laing and David Welch.
