Trade war 2.0: How USA tariffs upend global trade
Published: 02:02 PM,Feb 09,2025 | EDITED : 06:02 PM,Feb 09,2025
Shipping containers are unloaded from ships at a container terminal at the Port of Long Beach-Port in Los Angeles, California. — Reuters
The Trump administration has issued three Executive Orders (EOs) that have ushered substantial tariffs on Mexico, Canada and China. The order states that effective February 4, 2025, the US will impose a 25% tariff generally on all imports from Mexico and Canada, a 10% tariff on energy resources from Canada and a 10% tariff on all imports from China.
The White House claims these tariff impositions are justified on national security concerns of Illegal immigration, drug trafficking and economic dependence on foreign supply chains. The use of the International Emergency Economic Powers Act (IEEPA) is rare. The closest it was used was in 1971 during Nixon's presidency, in response to a monetary crisis and now, the Trump administration has resorted to the unprecedented use of IEEPA.
How members of Congress will meet this is yet to be seen. The Trump administration also plans to impose tariffs on steel, aluminium and copper from EU and European oil and liquefied natural gas. The US government has also indicated that tariffs will be imposed on semiconductors, pharmaceuticals and medical supplies to reduce reliance on foreign supply chains and boost domestic production.
The significant shift in US trade policy will inject turbulence into the global economic landscape, trigger immediate repercussions within the United States and strain diplomatic relationships with key trading partners.
Canada, Mexico, China and the EU have stated that they will implement retaliatory tariffs on US goods, expressing their intent to protect and defend their economic interests. Canadian President Justin Trudeau has introduced a 25% retaliatory tariff on US goods worth $155 billion, especially targeting goods like fruits, alcohol, furniture and clothing. President Claudia Sheinbaum of Mexico has imposed retaliatory tariffs on specific US goods. China may also escalate the issue to the World Trade Organization (WTO). It has also stated that countermeasures will be taken in response.
The taxes imposed on Canadian energy products; and Mexican and Chinese goods will increase costs for US consumers and business people; some economists predict the tariffs could reduce US GDP growth by up to 1.5% points in 2025.
Hike-up prices, fuel inflation and stagflation could trigger a combination of slower economic growth and rising inflation. Automobile manufacturing, agriculture and energy sectors are particularly vulnerable as they rely heavily on cross-border supply chains. The cost of parts imported from China and Mexico will increase for automobile manufacturers and the farmers will struggle with reduced export opportunities due to retaliatory tariffs from other countries.
Under the United States-Mexico-Canada Agreement (USMCA), tariffs on goods from member countries are generally prohibited as the agreement establishes a free trade zone with zero tariffs on most goods. The Trump administration has invoked the essential security exception. Article 32.2 of the USMCA allows them to take necessary action to protect themselves for security reasons. The imposition of tariffs raises questions on legal and diplomatic issues related to the provisions of USMCA. The three countries have deep integrated economies and supply chains worth an estimated $2 billion of manufactured goods crossing the borders daily.
The imposition of tariffs, irrespective of the USMCA agreement, creates increased trade tensions in North America, threatening North American economic integration and disrupting cross-border supply chains.
The latest developments show that tariffs on Mexico are postponed for a month as President Claudia Sheinbaum of Mexico has promised to deploy 10,000 troops to curb migration and drug trafficking. The tariffs on China and Canada will be effective from the February 4, 2025. Fears of stagflation and supply chain disruptions underpin the Trump administration's actions.
The retaliatory measures of Canada, Mexico and China could begin the Domino effect of disruptions and spiral into a global economic slowdown. The US protectionist tariffs will shift global trade alliances and strengthen regional agreements. Whether the US strategy will alleviate or exacerbate existing challenges for the USA and its trading partners remains to be seen.
The White House claims these tariff impositions are justified on national security concerns of Illegal immigration, drug trafficking and economic dependence on foreign supply chains. The use of the International Emergency Economic Powers Act (IEEPA) is rare. The closest it was used was in 1971 during Nixon's presidency, in response to a monetary crisis and now, the Trump administration has resorted to the unprecedented use of IEEPA.
How members of Congress will meet this is yet to be seen. The Trump administration also plans to impose tariffs on steel, aluminium and copper from EU and European oil and liquefied natural gas. The US government has also indicated that tariffs will be imposed on semiconductors, pharmaceuticals and medical supplies to reduce reliance on foreign supply chains and boost domestic production.
The significant shift in US trade policy will inject turbulence into the global economic landscape, trigger immediate repercussions within the United States and strain diplomatic relationships with key trading partners.
Canada, Mexico, China and the EU have stated that they will implement retaliatory tariffs on US goods, expressing their intent to protect and defend their economic interests. Canadian President Justin Trudeau has introduced a 25% retaliatory tariff on US goods worth $155 billion, especially targeting goods like fruits, alcohol, furniture and clothing. President Claudia Sheinbaum of Mexico has imposed retaliatory tariffs on specific US goods. China may also escalate the issue to the World Trade Organization (WTO). It has also stated that countermeasures will be taken in response.
The taxes imposed on Canadian energy products; and Mexican and Chinese goods will increase costs for US consumers and business people; some economists predict the tariffs could reduce US GDP growth by up to 1.5% points in 2025.
Hike-up prices, fuel inflation and stagflation could trigger a combination of slower economic growth and rising inflation. Automobile manufacturing, agriculture and energy sectors are particularly vulnerable as they rely heavily on cross-border supply chains. The cost of parts imported from China and Mexico will increase for automobile manufacturers and the farmers will struggle with reduced export opportunities due to retaliatory tariffs from other countries.
Under the United States-Mexico-Canada Agreement (USMCA), tariffs on goods from member countries are generally prohibited as the agreement establishes a free trade zone with zero tariffs on most goods. The Trump administration has invoked the essential security exception. Article 32.2 of the USMCA allows them to take necessary action to protect themselves for security reasons. The imposition of tariffs raises questions on legal and diplomatic issues related to the provisions of USMCA. The three countries have deep integrated economies and supply chains worth an estimated $2 billion of manufactured goods crossing the borders daily.
The imposition of tariffs, irrespective of the USMCA agreement, creates increased trade tensions in North America, threatening North American economic integration and disrupting cross-border supply chains.
The latest developments show that tariffs on Mexico are postponed for a month as President Claudia Sheinbaum of Mexico has promised to deploy 10,000 troops to curb migration and drug trafficking. The tariffs on China and Canada will be effective from the February 4, 2025. Fears of stagflation and supply chain disruptions underpin the Trump administration's actions.
The retaliatory measures of Canada, Mexico and China could begin the Domino effect of disruptions and spiral into a global economic slowdown. The US protectionist tariffs will shift global trade alliances and strengthen regional agreements. Whether the US strategy will alleviate or exacerbate existing challenges for the USA and its trading partners remains to be seen.