US trade partners, industry groups warn Trump tariffs would harm all parties
Reuters
Updated 5 min read
(Reuters) -Officials from Mexico, Canada and China and major industry groups warned that U.S. President-elect Donald Trump's threat of hefty tariffs on goods would harm the economies of all involved, causing inflation to spike and damaging job markets.
The news roiled currency, bond and equity markets on Tuesday, as the three countries are the U.S.'s largest trading partners. Mexico and Canada are particularly intertwined in U.S. auto production and energy output.
Trump's plan to impose a 25% tariff on Canadian and Mexican imports does not exempt crude oil, two sources familiar with the plan told Reuters on Tuesday.
Leaders and other top officials urged cooperation and dialogue in their initial reactions to Trump's surprise announcement on Monday for tariffs on goods from Canada and Mexico and an additional 10% levy on Chinese goods until the three countries clamp down on the flow of illicit drugs and migrant border crossings.
"To one tariff will follow another in response and so on, until we put our common businesses at risk," Mexican President Claudia Sheinbaum said during a regular press conference. Sheinbaum said she planned to send a letter to Trump and would seek a call with him to discuss the issue.
A Bank of Canada official said that any move by Trump to deliver on the threat would reverberate on both sides of the U.S. northern border.
"What happens in the U.S. has a big impact on us, and something like this would clearly have an impact on both economies," Deputy Governor Rhys Mendes said during an audience question-and-answer session in Charlottetown, Prince Edward Island.
Earlier, a spokesperson for China's embassy in Washington said: "No one will win a trade war or a tariff war."
The three countries shipped a total of more than $1 trillion of goods to the United States in the first nine months of the year, led by Mexico and followed by China and then Canada, according to U.S. Commerce Department data as of September.
Tariffs are paid by the companies that import goods, even though Trump frequently erroneously states that tariffs would be imposed on the foreign nations in question.
The threatened levies would appear to violate the terms of the U.S.-Mexico-Canada Agreement (USMCA) on trade. The deal, which Trump signed into law, took effect in 2020 and continued the largely duty-free trade between the three North American countries; the deal sunsets in 2026.
Warren Maruyama, former general counsel for the U.S. Trade Representative under President George H.W. Bush, said Trump's threat could be acted on with relative ease by declaring a national emergency, which would unlock the International Emergency Economic Powers Act.
"If precedent is any indication, it's a serious uphill fight" to challenge actions taken under that umbrella, he said.
'DISASTER FOR THE U.S. AUTO INDUSTRY'
Trump's broadside sent the Mexican and Canadian currencies tumbling, and shares of U.S. and European automakers dropped on the increased uncertainty.
"If implemented, this would spell disaster for the U.S. auto industry and Detroit Three manufacturers, all of whom import significant numbers of vehicles from Canada and Mexico, as well as Volkswagen and other European OEMs," Bernstein analyst Daniel Roeska said in a note.
Ford and General Motors were among automakers whose shares fell sharply. Energy shares were mixed.
Drilling and refining industry lobbying groups warned of big effects, including higher import prices and less available supplies of oil feedstocks and products, as well as potential retaliation that could hurt consumers.
The United States needs to import crude oil to meet its daily consumption needs, and Canada is its biggest foreign supplier, sending more than 4 million barrels daily, largely by pipeline.
"Maintaining the free flow of energy products across our borders is critical for North American energy security and U.S. consumers," said Scott Lauermann, spokesperson for API, a trade group representing the U.S. natural gas and oil industry.
Deutsche Bank analysts on Tuesday estimated the proposed tariffs on Mexico and Canada would increase U.S. inflation temporarily, and they raised their 2025 core personal consumption expenditure price index inflation forecast from 2.6% to 3.7%. It was at 2.7% in September.
FOCUS ON FENTANYL
Trump had pledged throughout his presidential campaign to levy tariffs of varying degrees on U.S. trading partners, part of his promise to "put America first."
Imposing import duties was a major policy plank during his first four-year term, and like now, he has also threatened them for non-economic reasons. In 2019, he threatened 5% tariffs on Mexico over the influx of migrants over the southern U.S. border, but called then off after Mexico agreed to take steps to tighten border controls.
In the current case, the flow into the U.S. of illicit drugs, particularly fentanyl, was added to Trump's mix of grievances with the three countries. The number of U.S. deaths from fentanyl overdoses actually declined in 2023, according to the Centers for Disease Control and Prevention, although nearly 75,000 people still succumbed to the powerful opioid.
Some said the tariffs could be an opening bid for negotiation. "It leaves the door open to Canada and Mexico coming up with a credible plan over the next two months to try and avoid those tariffs," said Thomas Ryan, North America economist at Capital Economics.
Regarding China, Trump in a post on his social media site said: "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."
It was not entirely clear what that would mean for China as Trump has previously pledged to end China's most-favored-nation trading status and slap tariffs on Chinese imports in excess of 60% - much higher than those imposed during his first term.
(Additional reporting by David Lawder, Andrea Shalal, David Ljunggren, Ann Saphir, Brendan O'Boyle, Joe Cash, Ethan Wang, Liz Lee, Timothy Gardner, Samuel Indyk, Thomas Hals and the Mexico City bureau; Writing by Dan Burns; Editing by Bill Berkrot and Leslie Adler)
