Merely weeks before his inauguration as the United States (US) President for a second term, Donald Trump announced that he would implement his campaign promise of raising tariffs immediately after assuming charge. In two posts on his social media platform Truth Social, Trump stated that he would “sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders”. He added, “This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” Trump also accused Beijing of not taking strong enough action to stop the flow of illicit drugs into the US, stating that the US “will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products” imported by the US.
FILE PHOTO: A worker sits on a ship carrying containers at Mundra Port in the western Indian state of Gujarat April 1, 2014. REUTERS/Amit Dave/File Photo (REUTERS)
Through these announcements, the president-elect targeted two sets of problems affecting the US he has consistently highlighted — the flow of illegal migrants and the opioid crisis. The former issue was among the central planks of Trump’s election campaign, while the latter was also given considerable space. Over the past several years, the opioid crisis emerged as a major problem for the US due to a steep rise in the number of deaths from drug overdose, according to the US Drug Enforcement Administration. Synthetic opioids, including fentanyl illegally produced in China, contributed to the spurt in opioid deaths over the past decade.
Trump’s announcement is his unique way of using unilateral measures to force targeted countries to fall in line with his agenda. But it raises two sets of questions. One, would the Trump tariffs sufficiently disrupt the exports of the three countries to the US, forcing their governments to clamp down on illegal immigration and trafficking of illicit drugs? Two, if the US acts unilaterally, as the president-elect has proposed, wouldn’t the target countries retaliate, setting off a trade war?
Trade data shows that the Trump tariffs could significantly affect overall exports of Canada and Mexico to the US, as the two North American countries are overwhelmingly dependent on their neighbour for their export business. In 2023, Canada’s dependence was 78%, and Mexico’s was almost 80%. Interestingly, both countries have become more dependent on the US after Trump renegotiated the North American Free Trade Agreement in 2018, replacing it with the United States-Mexico-Canada Agreement.
Sectoral trade data provides a better view of the extent of Canada and Mexico’s dependence on the US market. Several major manufacturing sectors of Canada, including transport equipment and metal fabrication, rely heavily on the US market, accounting for more than 90% of total exports. Mexico’s largest manufacturing sectors are almost as dependent on the US market. In 2023, more than 93% of Mexico’s garment exports and 90% of electrical and electronics exports ended up across the country’s northern border. And 83% of Mexico’s automobile industry exports, which have emerged as one of the largest globally, were to the US.
On the other hand, China’s exports would be much less impacted by the Trump tariffs. Although the US has remained its largest export market, China’s large presence in almost all regions never made it too dependent on a single country’s market. The US accounted for over 21% of China’s exports in the early years of the millennium, but since the 2008 economic recession, this figure stood at 17-19%. However, after the Covid pandemic, China’s exports to the US declined further to below 15% of the total in 2023. This is the lowest level since 1993, the early phase of China’s forays into the global economy.
Unlike the US’s two neighbours, none of the major manufacturing sectors of the Chinese economy are too dependent on the world’s largest economy. In fact, relatively more technologically-intensive sectors, especially electronics and other machinery producers exported only around 15% of their total exports to the US in 2023. Pharmaceutical and organic chemicals producers did similarly. On the other hand, the automobile industry, which is already being targeted by the Joe Biden administration using high tariffs, exported less than 10% to the US in 2023.
Political leaderships of the targeted countries have responded to the threat of Trump tariffs in varied ways. Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum contacted the US President-elect immediately to stave off the immediate economic turmoil their countries could face if the tariffs were imposed. Sheinbaum sounded a note of warning in her response: “If there are US tariffs, Mexico would also raise tariffs”. This was a clear signal that her government could take retaliatory actions against its largest trade partner. Trudeau made initial efforts to negotiate with Donald Trump, but premiers of British Colombia and Ontario have spoken of stronger Canadian responses such as imposing retaliatory tariffs and cutting off electricity exports to some US states.
China, on the other hand, is a study in contrast. While there has been no official response thus far on the measures it could adopt to counter Trump tariffs, a few voices from the policy community have provided some indications of China’s likely response. For instance, a former head of the People’s Bank of China argued that Beijing may be forced to retaliate to “give the public an account” of what is being done in response.
Trump seems to have made it a habit to threaten the imposition of higher tariffs on countries he feels are acting against his plans of “making America great again”. However, reactions from the three countries suggest that the US’s unilateral actions will be retaliated against, making trade war a distinct possibility.
Before he signs the executive orders authorising tariff hikes, Trump will do well to recognise that in a trade war, there are no winners.
Biswajit Dhar is distinguished professor, Council for Social Development. The views expressed are personal
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