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Trump announces 25% tariffs on imports from Canada, Mexico

Jan 21, 2025 10:43 PM IST

With “America First trade policy”, instructs team to study trade deficits, tariffs, deals; the US has a trade deficit of over $150 billion with Mexico and $67 billion with Canada

Washington: President Donald Trump has announced 25% tariffs on all goods coming in to the US from Canada and Mexico from February 1, even as he has issued a wide ranging executive order asking his government agencies to evaluate trade relationships, deficits, tariffs and possibilities of trade agreements by April.

President Donald Trump, from left, first lady Melania Trump, Vice President JD Vance and his wife Usha Vance, attend the national prayer service at the Washington National Cathedral, on Tuesday. (AP)
President Donald Trump, from left, first lady Melania Trump, Vice President JD Vance and his wife Usha Vance, attend the national prayer service at the Washington National Cathedral, on Tuesday. (AP)

With tariffs among the words Trump has claimed he loves the most, and repeated promises to impose across the board tariffs on day 1 of his term, the President’s inaugural address did not have any specific announcement on tariff hikes. Trump announced the creation of External Revenue Service (ERS) to collect taxes and tariffs, but the lack of disruptive announcements sent a signal of reassurance to markets and economists worried about trade wars.

But that was not to be the case for the US’s closest neighbours and two of the three top trading partners. During an expansive conversation with reporters at Oval Office, while signing executive orders on Monday, Trump said, “We are thinking in terms of 25% on Mexico and Canada because they are allowing vast numbers of people — Canada is a very bad abuser also — to come in and fentanyl to come in. We will do it February 1st”.

The US has a trade deficit of over $150 billion with Mexico and $67 billion with Canada. A Peterson Institute analysis showed that the sectors most affected by Trump’s tariff hikes will be machinery, electronics and electric machinery, transport equipment, fuels, metals, stone and glass, textiles, plastics, prepared foodstuff, vegetables, wood products, toys, animal products, footwear, among others. In the trade front, the US has been concerned about Chinese exports to the US through plants in Mexico. But in this case, Trump’s motivations are not economic but non-economic — to use tariffs as a way to stop immigration and fentanyl flows.

A broad based review

But the economic dimension will return, as indicated in Trump’s more elaborate written executive order titled “America First Trade Policy”. The President said, “I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

In more specific terms, Trump instructed the secretary of commerce, along with other cabinet counterparts, to investigate the causes of the US’s “large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures, such as a global supplemental tariff or other policies”. The secretary of commerce, as per the order, also has to review policies regarding application of anti dumping and countervailing duty laws.

He has asked the secretary of treasury to “investigate the feasibility of establishing and recommend the best methods for designing, building, and implementing an External Revenue Service (ERS) to collect tariffs, duties, and other foreign trade-related revenues”. The order also mandates the treasury secretary to study the rate of exchange between currencies of trading partners and the US dollar and recommend measures to “counter currency manipulation or misalignment that prevents effective balance of payments adjustments or that provides trading partners with an unfair competitive advantage in international trade”. Trump has also asked the Treasury secretary to investigate if foreign countries subject US persons or companies to discriminatory taxes.

Trump has asked the US Trade Representative (USTR) to “undertake a review of, and identify, any unfair trade practices by other countries and recommend appropriate actions to remedy such practices”, and assess the impact of the US-Mexico-Canada agreement.

The USTR has also been instructed to study America’s trade agreements, including sectoral agreements, and identify countries with which the US can explore agreements “on a bilateral or sector-specific basis to obtain export market access”. With Indian policymakers sending private signals to the Trump administration that Delhi may be open to a wider conversation on trade, this opens room for dialogue.

The China question

Given that US’s largest trade deficit is with China, and Trump initiated a trade war with China in his first term, the executive order has a detailed section on what Trump wants his agencies to do.

“The United States Trade Representative shall review the Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China to determine whether the PRC is acting in accordance with this agreement, and shall recommend appropriate actions to be taken based upon the findings of this review, up to and including the imposition of tariffs or other measures as needed,” Trump said in the order, taking no immediate action but leaving the door open for it in the future.

Trump has also asked the USTR to review a report on China’s actions and policies when it came to technology transfer, intellectual property and innovation — all three domains where US has accused China of unfair practices — and also evaluate China’s attempts to circumvent tariffs through third countries (Mexico and Vietnam are prominent examples in this regard).

The executive order also mandates the commerce secretary to “assess legislative proposals regarding Permanent Normal Trade Relations with the PRC” as well as assess the status of patents, copyrights, and trademarks upon Chinese citizens and ensure “reciprocal and balanced treatment”.

The strategic dimensions

In addition, Trump has also asked relevant departments to study from both an economic and security lens the state of American industrial and manufacturing base.

The Secretary of State will take a lead in evaluating America’s export control regime and suggest modifications in light of developments related to strategic adversaries.

“Specifically, the Secretary of State and the Secretary of Commerce shall assess and make recommendations regarding how to maintain, obtain, and enhance our Nation’s technological edge and how to identify and eliminate loopholes in existing export controls — especially those that enable the transfer of strategic goods, software, services, and technology to countries to strategic rivals and their proxies…They shall assess and make recommendations regarding export control enforcement policies and practices, and enforcement mechanisms to incentivise compliance by foreign countries, including appropriate trade and national security measures,” the order says.

Put it together and while much of the world, barring Canada and Mexico, may have avoided the most immediate dramatic moves Trump is known for, his expansive order shows that it is a matter of time before the US makes a bid to reset the international economic and trading system.

Read breaking news, latest updates from US, UK, Pakistan and other countries across the world on topics related to politics,crime, and national affairs along with Super Bowl 2025 Live Updates.
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Read breaking news, latest updates from US, UK, Pakistan and other countries across the world on topics related to politics,crime, and national affairs along with Super Bowl 2025 Live Updates.
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