Context:
President Donald Trump plans to impose tariffs on Canada and Mexico starting March 4, 2025, in addition to doubling the 10% universal tariff charged on imports from China.
New Tariffs Announced
- Canada & Mexico
- Tariffs levied on imports at 25% with 10% tax on Canadian energy products (oil & electricity).
- China
- Doubling the existing specialized 10% tariff on imports.
- Europe
- Proposed 25% tariffs, in addition to specific tariffs aimed at autos, chips, and pharmaceuticals.
- Steel, Aluminum & Copper
- Elimination of dynamics of 2018 tariffs, whereby imports now cost more.
Reasons for the Tariff Imposition
- Fentanyl and drug trafficking
- Inducing nations to conform is by having tariffs; illicit drug smuggling is one of those Tariff justifying reasons.
- Economic Policy
- In Trump’s wing, there is a foreign policy called “April 2 Reciprocal Tariff,” wherein U.S. tariffs would vary in a reciprocal manner from those imposed on American goods abroad.
Responses and Response Actions
Stock Market Impact
- S&P 500 has fallen by 1.6 percent, erasing nearly all post election gains.
- Consumers are going down, and trade fears are highly intense.
- Foreign Responses
- Mexico: The president, Sheinbaum, hopes that all discussions will take place to avoid those tariffs. Security cooperation comes with key economic goals.
- Canada: warned by PM Trudeau of retaliatory tariffs of about $30B, increasing to $125B after three weeks if dispute is not resolved.
- China: A dialogue, called for by the commerce minister, Wang Wentao, as China, appears better prepared for a trade line conflict.
Economic Effects
- Increased cost to U.S. consumers and businesses
- Producers in the United States would add additional costs to U.S. consumers from Canada/Mexico tariffs thought to approximate $120B 225B per year.
- The additional tariffs from China may add another $25B to U.S. costs a year.
- Rising inflation and political risk
- Inflation expectations were pushed up from 5.2% to 6% in February.
- The latest consumer confidence drop is the largest reported so far since 2021, indicating a concerning trend emerging among citizens.
- They wait in anticipation of a possible political fallout because tariffs have the potential to discredit Trump’s commitment to reducing inflation.
Trump’s tariffs seem designed to create an event that will lead to what could be tantamount to a global trade war. But it definitely has enormous economic and political consequences. Most importantly, it intends to address both drug trafficking and trade imbalances but may slow down growth, escalate prices, and put international relationships under tension.
Source: The Hindu
