(Source: China Business News, 2024-11-27)
According to Xinhua News Agency, Trump stated on social media this week that the United States will impose a 25% tariff on all products from Mexico and Canada from the first day he takes office until the drug and illegal immigration problems are effectively solved.
After the news was released, as of press time on the 27th, the Canadian dollar’s exchange rate against the U.S. dollar had fallen by approximately 0.52% compared to November 25, and the Mexican peso’s exchange rate against the U.S. dollar had shrunk by approximately 1.83% in the past two days.
According to Xinhua News Agency, Mexican President Sheinbaum stated on the 26th that the United States cannot effectively solve the immigration problem and alleviate the domestic drug consumption crisis in the United States by merely relying on threats and imposing tariffs. Sheinbaum added that if the United States imposes tariffs on Mexico, Mexico will be forced to take reciprocal measures.
Canadian Prime Minister Justin Trudeau responded on the same day that he had spoken with Trump and the two sides talked about the "close and effective ties" between the two countries and "some challenges that can be addressed together." In addition, Trudeau summoned the governors of all Canadian provinces to hold an emergency meeting on Wednesday (November 27) local time.
Huo Jianguo, vice president of the China World w88 Organization Research Association, told China Business News that Trump has shown a desire to impose tariffs on Mexico and Canada as his first agenda after taking office. This may be a way to put pressure on the U.S. in order to renegotiate the w88 agreement. However, Huo Jianguo believes that Trump's policies are not necessarily equivalent to "formal operations" because the decision-making process includes not only his personal opinions, but also the influence and coordination of the team and external forces.
Trump (First Financial Data Picture)
Tariff proposals may impact North American supply chain and industrial structure
According to data from the U.S. Census Bureau, Mexico and Canada are the United States' largest and second largest trading partners respectively, with total merchandise w88 with the United States reaching US$798.9 billion and US$773.9 billion respectively in 2023. A report by the U.S. Congressional Research Service (CRS) stated that the United States is Mexico's most important trading partner, accounting for 60% of Mexico's total global merchandise w88, and 80% of Mexico's exports are sold to the United States. At the same time, 78% of Canada's goods are exported to the United States, and nearly half of its goods are imported from the United States.
Analysis said that if the United States implements new tariff policies, it will have an impact on many industries such as oil, natural gas, agriculture, and manufacturing, and may change the long-term w88 model and supply chain structure.
According to the U.S. Energy Information Administration, Canada is the largest crude oil supplier to the United States, exporting more than 3.8 million barrels of crude oil to the United States every day, accounting for 60% of total U.S. crude oil imports. Midwestern refineries rely heavily on Canadian heavy crude oil to produce fuel. If tariffs are imposed on Canadian oil, refiners will face a dilemma: on the one hand, it will be difficult to find direct substitutes, and on the other hand, they will have to pay higher costs. That will push up fuel prices in the Midwest.
Former U.S. Commerce Secretary Wilbur Ross said that taxing Canadian energy is "meaningless" and will only increase production costs in the United States and will not help increase employment.
Patrick De Haan, director of oil analysis at GasBuddy, a natural gas market analysis company, also warned that imposing a 25% tariff on Canadian oil will have a significant impact on natural gas prices in the U.S. Great Lakes, Midwest and Rocky Mountains. "Refineries cannot find other alternatives overnight. This will require huge investment and several years to achieve."
The U.S. manufacturing industry is also extremely dependent on the supply chain of another neighbor, Mexico, especially the automotive and electronics industries. Mexico is the largest source of automobiles, auto parts and accessories for the United States, accounting for 27% of total imports from Mexico.
Patrick Anderson, CEO of the U.S. consulting firm Anderson Economic Group, said that if tariffs are imposed on Mexican products, "maybe no automobile assembly plant from Michigan to Ohio to Texas will be spared." He warned that the 25% tariff would have a direct impact on these factories.
The U.S. agricultural sector may also become a victim of Trump’s tariff policy. According to data from the United States Department of Agriculture, the United States imported US$40.1 billion in agricultural products from Canada in 2023. Canada is the second largest source of agricultural product imports in the United States, second only to Mexico. In addition, Canada supplies nearly half of all vegetable oils and a large number of forest products.
At the same time, USDA data showed that the United States imported $45.4 billion in agricultural products from Mexico, accounting for about two-thirds of U.S. vegetable imports and half of fruit and nut imports. Mexico supplies nearly 90% of avocados, 35% of orange juice and 20% of strawberries. In addition, U.S. imports of tequila and mezcal from Mexico totaled $4.66 billion in 2023, a 160% increase since 2019.
Felix-Antoine Vezina-Poirier, a strategist at BCA Research, a global economic analysis company, said that global asset tariffs are a headwind for the stock market because it will weaken real purchasing power and compress corporate profit margins. A stronger dollar also affects corporate profits. In addition, the inflationary effect of rising prices for imported goods could lift inflation expectations, leading the Fed to adopt a more hawkish stance.
Regarding the prospect of Trump's tax hikes, Bernstein wrote in a report to investors that it remains doubtful whether Trump will implement them due to the widespread negative effects of the tariffs.
Huo Jianguo told China Business News that usually, Trump will first express his position through social platforms, but during the process of balancing the opinions of the team and outsiders, the intensity or direction of the policy may be adjusted. If tariffs are reduced or policies change in the future, this indicates a change in the decision-making balance.
"At present, Trump's remarks do not necessarily represent formal policy operations, and there may be gaps between them and the actual policy documents issued. For example, he is now proposing to impose 25% tariffs on Mexico and Canada, which is more to put pressure on renegotiations. His purpose may be to put forward a high tariff plan and let the other party take the initiative to negotiate. Canada and Mexico may take the initiative to negotiate with him, or even make compromises or concessions in advance." Huo Jianguo said.
Ma Wei, an assistant researcher at the Institute of American Studies at the Chinese Academy of Social Sciences, told China Business News: "On the issue of fentanyl and immigration, Trump mainly wants to use tariffs to threaten cooperation between relevant countries and the United States. This will not be a long-term tariff behavior. Trump threatened Mexico with tariffs in his first term to achieve cooperation on immigration."
Renegotiate the U.S.-Mexico-Canada Agreement
In 2018, Trump announced the termination of the North American Free w88 Agreement (NAFTA) and re-signed the United States-Mexico-Canada Agreement (USMCA) in 2020. The new agreement retains the inter-state dispute settlement mechanism as well as the bilateral dispute settlement mechanism for reviewing w88 remedy disputes. If the United States imposes additional tariffs on Canada and Mexico, how should the latter two seek rulings?
Li Siqi, associate professor at the China World w88 Organization (WTO) Research Institute, w88 casinotold China Business News that the United States, Mexico and Canada are both USMCA contracting parties and WTO members. When w88 disputes arise, they can choose to resolve them under the USMCA dispute settlement mechanism or resort to the WTO dispute settlement mechanism.
"The USMCA dispute settlement clause stipulates that if the complaining party and the respondent fail to effectively resolve the dispute, the complaining party can terminate the w88 benefits of the respondent equal to the disputed measures. The WTO dispute settlement mechanism depends on which provisions of the WTO agreement the complaining party specifically cites." Li Siqi said.
In terms of implementation means, currently, Trump has not specified how he will impose tariffs, but in theory, he can invoke the International Emergency Economic Powers Act (IEEPA) to take corresponding measures.
Li SiqiExplained that USMCA is a w88 agreement, while IEEPA is a law authorizing the president to take economic measures during a national emergency. If the president declares a national emergency under IEEPA and deems it necessary to take action against certain trading partners, IEEPA can theoretically authorize the president to make adjustments to the w88 agreement under USMCA, including imposing tariffs. However, whether its use can completely bypass the restrictions of the USMCA may still trigger legal disputes, and whether it can be actually implemented depends on specific legal interpretations and domestic political decisions in the United States.
Last month, Trump said on the campaign trail that he would push for a renegotiation of the USMCA. In fact, according to Article 34 of USMCA (the so-called "sunset clause"), the parties to the agreement must conduct a "joint review" of the agreement six years after the agreement comes into effect, that is, on July 1, 2026. The agreement will expire in 2036 unless all parties confirm in writing that they wish to extend it for another 16 years. According to the USMCA implementation law in the United States, the United States w88 Representative (USTR) must initiate public consultations on the review at least 270 days before the review, that is, around October 2025.
William Reinsch, former chairman of the National Foreign w88 Council, believes that Trump may hope to use the threat of tariffs to prompt early renegotiation of the USMCA. He said: "This is more like a threat. My guess is that their strategy is to keep applying pressure until the other party compromises."
Huo Jianguo said that Trump may use the opportunity of renegotiation to impose more restrictions on Mexico after returning to power. “Canada and the United States are allies in the same trench. The relationship between Mexico and the United States is more of an economic interdependence. The United States needs Mexico to provide manufactured goods, but does not want Mexico to over-develop or benefit too much from it. At the same time, the United States' demands for restricting illegal immigration are more directed at Mexico. ”
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