Trump, the president of the United States, has imposed severe tariffs on Mexico and Canada.
Markets around the world sagged as a result of the US’s largest trading partners’ tariffs being implemented at 00:00 Eastern Time (05:00 GMT).
Additionally, Washington imposed an additional 10% on Chinese imports, an increase from the previous month’s 10%.
The top US trading partners are Mexico and Canada, which account for more than 30% of all traded goods. The three North American nations trade for more than $1.6 trillion annually.
Imports worth almost $ 918 billion would be subject to tariffs from Mexico and Canada.
What brought us here?
Following Trump’s re-election in November, tariffs on Mexico and Canada were one of the first floated. He claimed that his goal is to balance the US’s largest trading partners’ trade deficit and to encourage Mexico and Canada to stop the flow of drugs and immigrants into the country.
Last-minute agreements to postpone tariffs that had been scheduled to take effect on February 4th, Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau reached a compromise on February 4 to improve border security to stop the flow of migrants into the US and stop the trafficking of drugs.
Trump also made a 25 percent tariff announcement for imports of aluminum and steel that will go into effect on March 12 that will affect both Mexico and Canada.
How do tariffs operate and what are they?
A tariff is a government-imposed tax on imported goods and services that businesses that import them pay.
Tariffs frequently increase consumer costs because they make imported goods more expensive, potentially lowering demand.
The first Trump administration’s tariffs were intended to strengthen US industries while penalizing foreign exporters when they first became in office in 2018. The burden of these tariffs was more on American businesses and consumers than on foreign exporters, though.
The 25 percent US tariff on Mexican and Canadian exports could cause economic uncertainty, lower trade, and lead to job losses, escalating trade wars, and increase costs.
What is the trade deficit between Mexico and the US?
The US is trading less than it is selling to Canada and Mexico, which means that it purchases more goods from those nations.
Trump argued in a statement from the White House on February 1 that trade accounts for only 24 percent of US GDP, compared to 67 percent of Canada’s gross domestic product (GDP) and 73 percent of Mexico’s. With more than $1 trillion in goods trade, the US had the largest trade deficit in the world.
The largest trading partner of the US is Mexico. The US imported $ 505.8 billion worth of goods from Mexico and $ 334 billion, leaving a trade deficit of $ 170.8 billion in 2024.
The US has consistently had a deficit with Mexico, which has grown over the past ten years, as trade volume has grown.
Between 2023 and 2024, the two nations’ trade deficit has grown by 12.7 percent.
The second-largest trading partner of the US is Canada. In 2024, the US imported $412.7bn in goods from Canada and exported $349.4bn, resulting in a trade deficit of $63.3bn.
Although tariffs may reduce imports and reduce trade deficits, the real impact of tariffs has a higher price for consumers and the potential for retaliatory tariffs.
What impact will tariffs have on the USMCA (United States-Mexico-Canada Agreement)?
Trump announced the USMCA as a replacement for the 1992 NAFTA, which was signed under President George H. W. Bush, in his first year as president.
By enforcing stronger labor and environmental protections, increasing car-manufacturing requirements, enforcing stronger digital trade regulations, and strengthening intellectual property protections, the USMCA, which became effective in 2020, aimed to modernize trade between the three nations.
In 2026, the USMCA will be reviewed, but potential tariff threats could prompt these discussions.
Which Mexican goods will be subject to tariffs?
The majority of exports to the US come from Mexico, where it is one of the largest foreign exporters of goods. Cars, trucks, and auto parts are the most popular exports. Important exports include computer equipment, industrial machinery, and home appliances. Petroleum and other important exports include those made of plastic, textiles, agricultural products, medical supplies, and plastics.
Mexico exported to the US in 2023 in particular, according to the Observatory of Economic Complexity (OEC).
- Vehicles and automotive components ($123bn): cars, trucks, and other automotive components
- Electronics and computer hardware ($86. 1 billion), as well as consumer electronics and telecommunications equipment
- $78.7 billion includes industrial machinery and equipment, including mechanical appliances and parts
- $25.2 billion in mineral fuels and oils, including refined and refined gasoline
- $22.5 billion) includes medical, surgical, and scientific equipment and tools.
- Furniture, bedding, and lighting ($13. 3 billion): this includes mattresses, lighting fixtures, mattresses, and furniture for homes and offices.
- Beer and other hard liquors are included in the $11.6 billion ($1) budget for beverages, spirits, and vinegars.
- Fruit, nuts, and fruit peels ($9.38 billion) include avocados, tomatoes, and a wide range of fruits and vegetables.
What products from Canada will be subject to tariffs?
About 30% of all Canadian exports to the US are made up of energy products, including crude oil and petroleum products, which are the country’s largest exporter of oil. Second-largest exports are machinery and mechanical appliances, followed by cars, tractors, and auto parts. Medicines, plastics, and wood products are some of the other important exports.
In 2023, Canada’s main exports to the US were, according to the OEC:
- Oil and petroleum products ($131 billion) include
- $56.7 billion) includes cars, trucks, and other car parts.
- $ 32.2% includes industrial machinery and equipment.
- $14. 2 billion in plastics and other products
- Products made of wood and charcoal (including plywood and saw wood) ($11,5 billion)
- $ 10 billion includes electrical appliances and components, as well as electrical machinery and equipment.
- Gold, silver, and diamonds are precious metals and stones worth $9.87 billion.
Source: Aljazeera
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