Pay Americans, pay: A $1.2 tn revenue jump drives Trump tariffs on Mexico, Canada and China

On Saturday, US President Donald Trump unleashed shockwaves within America, Canada, Mexico and China after he announced high tariffs on goods that come from these nations. In less than a month after assuming the office of the president, Trump signed executive orders to impose tariffs on these nations which would take effect on February 1.

The White House said that the tariffs were being imposed in retaliation to immigrants and illegal drugs that Trump says enter the US from those countries. The executive order titled Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border drew ire from both outside and within the United States.

As per the order, Trump agreed to place 25 per cent tariffs on all goods from Canada and Mexico, and a 10% tariff on both Canadian oil exports and Chinese goods. All these tariffs are being imposed under the authority of the International Emergency Economic Powers Act. The White House maintained that if the countries affected by the tariffs attempted to retaliate, the US would further increase the tariff rates. Meanwhile, Canada and Mexico have already announced that they will take retaliatory measures.

What are the tariffs Trump has unleashed?

To elaborate further on this, the White House said that it would place a 25 per cent tariff on Canada and Mexico and an additional 10 per cent tariff on China. However, it remains unclear exactly how long the tariffs will be in place.

It was stated that Trump could make exceptions for certain sectors, such as oil and gas, or limit the tariffs to select groups. Before the White House announced the tariffs, some of Trump’s advisers appeared uncertain as to whether or when tariffs would be imposed. “I can’t tell you when,” Peter Navarro, Trump’s senior trade and manufacturing adviser, told CNBC on Friday.

Now the question that arises is why the US imposed these tariffs on Canada, Mexico and the US. Before entering the office, Trump threatened to impose tariffs on the US’s three biggest trading partners: China, Mexico and Canada. He insisted that he would impose the tariffs until the countries deal with immigrants and illegal drugs coming into the US.

The Republican firebrand has admitted that while he sees tariffs as a powerful bargaining chip, it comes with a high price. He argued that tariffs can also put pressure on US manufacturers and importers to produce goods domestically.

“All you have to do is build your plant in the United States, and you don’t have any tariffs,” Trump has said. However, it can be hard for local manufacturers to meet the growing demands of Americans in such a short time. Not only this, importers might also push the cost of tariffs onto consumers, causing prices to rise.

How Americans will end up paying more?

A 25 per cent tariff on all imported goods from Mexico and Canada would automatically make consumer prices go up. It is pertinent to note that Canada is a major exporter of crude oil, while Mexico exports many fresh fruits and vegetables. Not only this, Mexico is also the largest auto parts exporter to the US and China is known for exporting chips used in electronic items like phones and laptops.

Hence the prices of all the imported goods will shoot up instantly with high tariffs. The Tax Foundation, a bipartisan think tank, estimates that a 25 per cent tariff on Mexico and Canada and a 10 per cent tariff on China, as a tax, would increase overall taxes by $1.2 trillion.

Trump has celebrated the idea, insisting that the US government would receive more revenue through these tariffs. So ultimately, the tariff war would end up affecting the Americans, who were already struggling with the high cost of living.

How are the nations responding

• Canada

Shortly after Trump signed the executive order, Canadian Prime Minister Justin Trudeau held a press conference in which he said that Ottawa would be taking retaliatory measures. On Saturday, the Canadian prime minister said that the tariffs on American goods include “immediate tariffs on $30 billion worth of goods as of Tuesday,” the day the US is set to begin collecting tariffs on Canadian goods. He insisted that the rest of the tariffs would come in about three weeks “to allow Canadian companies and supply chains to seek to find alternatives.”

“Like the American tariffs, our response will also be far-reaching and include everyday items such as American beer, wine and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing and shoes,” the Canadian premier said. “It’ll include major consumer products like household appliances, furniture and sports equipment, and materials like lumber and plastics, along with much, much more,” he added.

• Mexico

Mexican President condemned Trump’s latest order and said that she has instructed her secretary of the economy “to implement the Plan B we have been working on, which includes tariff and non-tariff measures in defence of Mexico’s interests.”

“We categorically reject the White House’s slander of the Government of Mexico alleging alliances with criminal organizations, as well as any intention to interfere in our territory," she wrote in the post.

“Mexico not only does not want fentanyl to reach the United States, it does not want it to reach anywhere. Therefore, if the United States wants to combat the criminal groups that traffic drugs and generate violence, we must work together in a comprehensive manner, but always under the principles of shared responsibility, mutual trust, collaboration and above all, respect for sovereignty, which is non-negotiable,” she added.

• China

Meanwhile, China’s Commerce Ministry ‘firmly opposed’ Trump’s decision and said that will “challenge US tariffs under WTO”. In a statement, Beijing emphasised that there are “no winners in a trade war or tariff war”. It added that the additional duties would “inevitably affect and damage future bilateral cooperation on drug control”.

China went on to urge Washington to engage in “frank dialogue and strengthen corporation”. While firmly opposing the US tariffs, China pledged to launch “corresponding countermeasures” against Trump’s move. Hence, it will be interesting to see exactly how long these tariff wars will last.