Mexico and Canada weigh potential fallout of Trump tariffs – DW – 12/12/2024 | EUROtoday

Canada and Mexico are grappling with US President-elect Donald Trump’s risk to put 25% tariffs on exports into their most vital commerce market, with each governments weighing their approaches.

Trump mentioned he would signal govt orders placing the tariffs in place on his first day again in workplace. He linked the problem to what he says is Mexico and Canada’s failure to forestall unlawful migration and drug trafficking at US borders.

Economists say tariffs could be very damaging for each Canada and Mexico, with the latter notably weak.

“Mexico is really tied to the US economy, and any trade dispute will hurt both economies a lot, but it will hurt Mexico much deeper than the US,” Jeffrey J. Schott, a senior fellow with the Peterson Institute for International Economics, informed DW.

Wendy Wagner, a lawyer specializing in worldwide commerce with Ottawa, Canada-based agency Gowling WLG, mentioned tariffs would trigger critical issues for Canada.

“It seems like a very unrealistic and damaging proposition to have 25% import tariffs into your main export market,” she informed DW.

Divide and conquer

The tariff threats have triggered stress between Mexico and Canada.

During a gathering with Trump at his Florida base final month, Canadian Prime Minister Justin Trudeau reportedly tried to persuade Trump that Canada shouldn’t be lumped in with Mexico on medicine or border points.

Mexican President Claudia Sheinbaum mentioned Canada has “a very serious problem with fentanyl,” including that “Mexico should not be used as part of electoral campaigns,” referring to forthcoming Canadian elections.

Sheinbaum had a cellphone name with Trump, after which she claimed, “There will not be a potential tariff war.” She mentioned she had made assurances to Trump relating to migration initiatives and drug trafficking.

Schott mentioned he believes Trump’s technique is to deal individually with the nations and undermine the so-called United States-Mexico-Canada settlement (USMCA) — a free-trade deal brokered throughout his first time period and that succeeded the previous NAFTA pact.

“Trump likes to deal bilaterally,” he mentioned. “So he’s not going to treat this as a North American issue.”

A brand new deal or no deal?

Politicians in some Canadian provinces argued that Canada ought to strike its personal take care of the US, slicing out Mexico. For his half, Trudeau mentioned he helps the USMCA and that sustaining it’s his “first choice.” But he hinted at different choices “pending decisions and choices that Mexico has made.”

Bill Reinsch, a senior economics adviser with the Center for Strategic & International Studies, mentioned he thinks tariffs on Canada and Mexico stay within the “threat category” and emphasised that the USMCA is up for renegotiation in 2026.

“It’s unavoidable. They have to deal with it anyway,” he informed DW. “At best, Trump’s going to move negotiations up a year, but it’ll still be the same negotiation. It’s complicated because the threat is about drugs and migrants. It’s not about trade.”

From risk to actuality

If the tariffs moved from the risk class into actuality, there’s little doubt that they’d current big challenges for the Canadian and Mexican economies.

Almost 75% of Canadian exports went to the US in 2022, in keeping with the MIT Observatory of Economic Complexity indexunderlining how expensive tariffs may very well be for Canada.

“That’s a very high figure, but it’s made more important by the fact that Canada is an exporting economy,” mentioned Wagner. “There’s not a huge domestic market. Most Canadian companies go into business with the expectation that they will be exporting.”

Canada exports a variety of products and commodities to the US, from petroleum to gasoline generators and timber to automobiles. Wagner mentioned an added issue within the relationship is how interlinked their provide chains are, notably within the car business.

Mexican dependency

Mexico is much more depending on the USA as an export vacation spot, with 77% of its items going there in 2022, in keeping with the MIT index.

The car sector is particularly embedded and Schott emphasised that tariffs would make automobiles costlier for shoppers within the United States.

“It’s not going to be a boon for US production because the companies that are going to be hurt by the tariffs affecting Mexico are the companies also producing in the United States. Those costs are going to be passed on to the US consumer,” he mentioned, including that tariffs on Mexico may make one of many points Trump is attempting to resolve — which is migration — even larger.

“Damage to the Mexican economy only makes economic conditions in Mexico worse and encourages more illegal migration to the United States,” Schott mentioned. “I’m not sure that factor is being adequately addressed in the proposals of the incoming Trump administration.”

Idle risk or critical danger?

In the occasion of tariffs, retaliation from each Mexico and Canada could be probably, in keeping with Reinsch, who famous that Mexico’s president already mentioned she would put tariffs in place.

“I think the political situation in Canada would probably compel them to do the same which would be enormously disruptive to all three economies and would be enormously inflationary,” mentioned Reinsch.

There remains to be some optimism that Trump’s model of negotiating, by making threats prematurely of putting a deal, means the tariffs is not going to come to move.

Wagner mentioned she is hoping for a unique resolution to the issue, noting that “tariffs are really a very imperfect solution.”

Yet the truth that Trump positioned tariffs on metal and aluminum from each Canada and Mexico prompted Schott to take the contemporary risk severely: “He did it, and he would be willing to do it again under the right circumstances.”

Edited by: Uwe Hessler