James Fite
Editor-at-large
President Donald Trump established his promised tariffs against Canada, Mexico, and China on Saturday, February 1. He said Americans could feel “some pain” after they take effect, and, so far, it looks like he may be right. Within 24 hours, Canada had already responded with its own retaliatory taxes on American imports, Mexico enacted some as-yet vague and undefined “Plan B,” and China is suing the US in international court. That has the potential to be quite the economic and political headache for the Trump administration, American businesses, and consumers alike.
Canada’s Cold Shoulder
In response to the new 25 per cent tariffs against Canadian imports (or just 10 per cent for oil), Prime Minister Justin Trudeau has promised to implement 25 per cent duties on billions worth of American imports beginning Tuesday, February 4, the day the US is expected to start collecting the additional fees.
Chrystia Freeland, a candidate to replace Trudeau as prime minister, called Trump’s tariffs “a betrayal of America’s closest friend.” “Americans are going to be astonished by the Canadian response,” she told the press. “We’re hurt for sure, because we’re your friends and neighbors. But most of all, we’re angry. And we are united and resolute.”
Ontario will be pulling American alcohol from government-run liquor stores beginning Tuesday, as well, and the Liquor Control Board of Ontario will also take US products out of its catalog so other stores can’t restock them. “Every year, LCBO sells nearly one billion dollars worth of American wine, beer, spirits and seltzers. Not anymore,” Premier Doug Ford said in a statement on Sunday. “There’s never been a better time to choose an amazing Ontario-made or Canadian-made product.”
Prices for numerous goods are expected to increase for consumers in both nations – though industry watchers suggest Canadians will suffer more since a greater portion of their economy is based on US trade than the other way around.
Trump did say Sunday that he plans to talk to Prime Minister Trudeau Monday, though he warns folks not to expect any major changes this soon.
Mexico’s Plan B and the Chinese Lawsuit
Mexican President Claudia Sheinbaum posted on X that she had instructed her secretary of the economy to “implement the Plan B we have been working on, which includes tariff and non-tariff measures in defense of Mexico’s interests.” Beyond those vague details, however, she has not explained further what her “Plan B” entails. She did go on to express her feelings about Trump’s tariffs, though: “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.”
“Mexico does not only not want fentanyl to reach the United States, it does not want it to reach anywhere,” she added, concluding that the US and Mexico should work together to take on the cartels instead. Considering Trump’s coordinated actions against ISIS in Somalia with the Somali government over the weekend, that kind of talk might just change things.
Unlike the other North American nations, China hasn’t mentioned retaliatory tariffs. Instead, the world’s second largest economy is taking a different route, filing suit against the US with the World Trade Organization. “China calls on the US to correct its mistakes, work toward mutual understanding, engage in candid dialogue, strengthen cooperation, and manage differences on the basis of equality, mutual benefit, and mutual respect,” the Chinese Commerce Ministry said in an official statement.
The US has blocked the appointment of appellate judges to the World Trade Organization for years, crippling its ability to apply real pressure to resolve international trade disputes. Even without that, however, international organizations have a questionable ability to influence the policies of a strong American president anyway.
Tariffs Over Time
Canada, Mexico, and China accounted for a little over 40 per cent of total imports to the US last year. While the North American countries rely considerably more on American imports than the US relies on them, that’s still a significant amount of the goods for sale stateside, which will almost certainly jump in price – by at least the 25 per cent of the tariffs, most likely.
Retaliatory tariffs raise the cost of American goods in those countries, pushing people to buy local rather than imported American – and that could mean less profit for US manufacturers. However, Americans, on average, have the highest consumer wealth in the world behind the Swiss. So not only do American goods make up a far greater share of Mexican and Canadian imports than the other way around, but Americans can, simply put, better afford to pay more.
But the news isn’t all doom and gloom. While energy prices are expected to spike slightly in the short term, over time, energy costs are expected to actually drop. “While the initial move on crude oil is upward, a cycle of tariffs and retaliatory actions by Canada, Mexico, China, and perhaps others in the future could lead to a worldwide recession, causing oil prices to plummet,” according to Andy Lipow, president of Lipow Oil Associates.
As Lipow explained to the press, Canada and Mexico will look for other buyers of their oil, but the US will be difficult to replace. For one thing, we’re close. For another, we consume more oil than any other country in the world. The next two countries combined, China and India, barely rival America’s oil consumption. The US, however, will have to transition more heavily to domestic oil, which is certainly part of Trump’s plan anyway. We’ll likely also end up importing more OPEC product.
According to Goldman Sachs, this and the fact that Mexico and Canada lack the refining capacity and alternative export routes to viably replace America as a customer means that Canadian and Mexican oil will likely be sold to the US at a steep discount very soon. Additionally, Trump is applying pressure to OPEC to stop limiting the flow of oil and let prices fall.
President Trump claims Americans will feel the sting of his tariffs, but that it will be short lived and entirely worth it. The expert opinions coming out of the investment banking and oil industries are promising, but one wonders if the same logic can apply to the rest of the economy or, for that matter, if it’s even accurate at all. Then there’s the political side. When Trump waved his tariff bat at Colombia, the South American nation quickly changed its tune. The same can’t be said for Canada, Mexico, or China – not yet, at least. It may be that President Trump and the leaders of these other nations will work out some advantageous trade deals in the future. But for now, it seems Americans must gird their financial loins and prepare to either spend more or do without.
This article was originally published by Liberty Nation News.