President-elect Donald J. Trump’s threats to impose damaging tariffs on Canada, Mexico and China may ultimately be an opening wager to try to use the power of the American market to persuade other countries to stem a flow of drugs and migrants across U.S. borders.
But even if the threat to impose vast tariffs on some of the world’s largest economies is a negotiating tactic, it is also a gambit that has immediate real-world consequences.
Before Mr. Trump even sets foot in the Oval Office, his threat to put tariffs on America’s three largest trading partners on his first day in office was reverberating around the world, shocking international businesses, rocking diplomatic relationships and calling into question two big trade deals that Mr. Trump negotiated during his first term.
Mr. Trump’s pronouncement late Monday that he would impose a 25 percent tariff on all goods from Canada and Mexico and a 10 percent tariff on products from China was immediately denounced by business groups, who said such a move would cause grave economic harm. Foreign officials rushed to reassure the incoming Trump administration that they had been working to stop drugs and migrants from coming into the United States — while warning that they were also ready to turn around and impose their own tariffs on American exports.
Mr. Trump’s threats may have been intended to silence investors and economists who have recently questioned whether the president-elect would go through with imposing the big levies he promised while campaigning. In the run-up to the election, Mr. Trump pledged to put a 60 percent tariff on goods from China and a tax of at least 10 percent on all other imports. Such a move could ignite a global trade war, slowing economies around the world.
Whether Mr. Trump’s threats ultimately show his prowess as a deal-maker or simply sow chaos, they are a reminder that the president-elect is eager to upend global relationships to try to secure points for the United States. That includes a willingness to potentially topple the trade pacts that he himself worked to put in place with Mexico, Canada and China during his first term after he used bruising tariffs to force them into making concessions.
One of the biggest outcomes of Mr. Trump’s first term was the United States-Mexico-Canada Agreement. That trade pact replaced and updated the previous deal, the 30-year old North American Free Trade Agreement, which Mr. Trump called the “worst trade deal ever made.”
Under the U.S.M.C.A., goods that meet certain requirements are supposed to be able to move around the continent without being subject to tariffs. A 25 percent tariff on all Mexican and Canadian products would be a clear violation of that agreement, and could call into question the future of the deal itself.
Wendy Cutler, a vice president at the Asia Society Policy Institute and former U.S. trade negotiator, said the threats put Mexico and Canada “in a tough spot” given their dependence on the U.S. market. The pressure on them to take measures to placate the president-elect would be strong, she said, while China might also be subject to even more tariffs in the future.
“Like Trump’s first term, some of these tariff threats may never lead to the actual imposition of tariffs,” she said. “Nevertheless, our trading partners need to be prepared for additional threats, and many are developing strategies as we speak for navigating around them.”
The threats offered a preview of what could be another four years of trade tumult, mirroring Mr. Trump’s first term when he scrambled the country’s economic and diplomatic relationships. The president-elect has long viewed tariffs as a powerful source of leverage that, when coupled with his unpredictable style, encourages other countries to swiftly make concessions.
After taking office in 2017, Mr. Trump hit a slew of countries with tariffs on steel and aluminum. He wielded those taxes as leverage against Canada and Mexico to renegotiate NAFTA. He also put significant tariffs on China in 2018, then continued to ratchet them up over the next 18 months until his administration signed a trade deal with Beijing in January 2020.
This time, Mr. Trump said he would hit China for failing to prevent chemicals used in fentanyl from coming into the United States. He said he would impose tariffs on Mexico and Canada to force those countries to stem the flow of fentanyl and end illegal migrant crossings into the United States.
In a public letter on Tuesday, President Claudia Sheinbaum of Mexico said her country had developed a comprehensive policy that had led to far fewer encounters at the U.S. border and said tariff threats would not solve the problem.
The number of illegal border crossings from Mexico has fallen significantly in 2024, in part because of a Mexican crackdown on migrants crossing through their country as well as new U.S. restrictions on asylum at the southern border.
Ms. Sheinbaum also threatened to answer Mr. Trump’s tariffs with levies on American products, even if that harmed automakers and other businesses that trade goods along both sides of the U.S.-Mexico border.
“For every tariff, there will be a response in kind, until we put at risk our shared enterprises,” she said.
Justin Trudeau, the Canadian prime minister, said Tuesday that he would hold an emergency meeting on Mr. Trump’s tariff proposal with all of Canada’s provincial and territorial leaders. He also responded to accusations in the House of Commons that he was not acting forcefully enough by saying he was working to defuse the threats.
“Rather than panicking, we’re engaging in constructive ways to protect Canadian jobs like we have before,” Mr. Trudeau said. “The idea of going to war with the United States isn’t what anyone wants.”
Speaking in Ottawa, Pierre Poilievre, the Conservative opposition leader, indicated that he is open to removing Mexico from the free trade agreement.
Asked by reporters if he would exclude Mexico from any talks to prevent Mr. Trump’s proposed tariffs, Mr. Poilievre said he would put Canada first and “do what is necessary to preserve that relationship above all others.”
Imposing 25 percent tariffs on Canada and Mexico could cause significant damage to many industries that organized themselves around an integrated North American market. Since NAFTA was signed more than three decades ago, makers of cars, textiles, snack foods and other products have set up supply chains that snake between the countries, as they move from raw materials to their final consumers.
Kim Glas, the chief executive of the National Council of Textile Organizations, which represents American textile makers, said that her industry welcomed an increase on tariffs on Chinese textiles and apparel, but that imposing tariffs on Mexican and Canadian goods could undermine American manufacturing.
Factories in the United States, Mexico and Canada are linked together in a co-production chain under the current trade agreement, she said. The U.S. textile industry exports 53 percent of its products to factories in Mexico and Canada, where they are turned into finished products that then come back into the United States.
“This is a vital supply chain that sustains U.S. textile manufacturers, our regional trade partners and their workforces,” she said, adding that the arrangement “competes directly with China and Asia.”
Jake Colvin, the president of the National Foreign Trade Council, which represents major multinationals, said the move would be a clear violation of the United States-Mexico-Canada Agreement, which includes tools to resolve disputes among the countries without resorting to trade wars.
“While we’re all familiar with the president-elect’s fondness for tariffs as a negotiating tool, it’s particularly troubling that he’s threatening to aim them at America’s closest allies and trading partners on the very first day of his administration,” he said.
Trade lawyers said Mr. Trump would have the legal authority to sign an executive order on his first day in office, though he might choose to delay the date at which the tariffs go into effect in order to force countries to the negotiating table. Mr. Trump took that approach when he first imposed tariffs on Chinese goods.
U.S. markets shrugged off the threats on Tuesday, with the Dow Jones industrial average rising to offset losses in the morning.
Analysts at Goldman Sachs said in a note Tuesday that they still expected it was more likely that Mexico and Canada would avoid across-the-board tariffs. If the tariffs were imposed, however, they estimated they would raise the U.S. effective tariff rate by 8.6 percentage points and push up a core inflation index closely watched by central bankers by 0.9 percent.
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