Trump's Radical Trade Threats
President-elect Donald Trump has effectively pledged to unilaterally withdraw from the United States-Mexico-Canada Agreement (USMCA) - a trade deal he had negotiated - by threatening to impose a 25% tariff on key trading partners. In a provocative post on Truth Social, he also promised an additional 10% levy on Chinese imports, framing the tariffs as a necessary measure to combat illegal immigration and drug trafficking, particularly fentanyl.
If enacted, the economic implications could be profound. China, Mexico, and Canada collectively represent 40% of US imports, valued at USD 3.2 trillion annually. The announcement immediately unsettled global markets, with the Canadian dollar plummeting to a four-year low and the Mexican peso approaching its weakest level since 2022.
Trump's plan to bypass Congress and enact these sweeping measures through executive action on his first day back in office has sparked widespread constitutional and economic concerns. The US Constitution mandates Senate approval for treaty creation but remains ambiguous about their termination. Historically, treaty withdrawals have involved both legislative and executive branches, with congressional backing viewed as a critical safeguard for significant trade policy decisions.
Regular readers will recall our views on tariffs and the potential dire economic consequences. This sentiment is echoed by research conducted by the National Bureau of Economic Research which reveals that prior tariff measures failed to deliver economic benefits, often triggering retaliatory actions, job losses, and rising costs for American consumers—disproportionately impacting low-income households.
The stakes are particularly high with Mexico, now America’s largest trading partner, accounting for around USD800bn in annual trade. Disrupting established supply chains with such tariffs risks undermining North American economic integration and inflating costs across industries, threatening to derail the very objectives these proposals aim to address.
This approach is characteristic of Trump's negotiating strategy: making bold threats to create pressure points and leverage concessions. During his first term, tariffs on items like washing machines raised inflation concerns, though manufacturers ultimately adapted by relocating production. While such tactics frequently failed to yield desired outcomes, they became a defining feature of his presidency.
As Trump positions himself for his second term, these tariff threats may well function more as a negotiation tactic than a definitive policy—a familiar playbook that continues to unsettle global economic dynamics.
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