The recently imposed tariffs that President Trump promised on Mexico and Canada have officially taken effect. Chinese goods have also seen tariffs increase by an additional 10%, totaling a 20% surcharge.

Trump has maintained that these tariffs are intended to be punitive, aiming to deter drug trafficking into the United States. He has also suggested that the tariffs serve as an incentive for companies to relocate manufacturing to U.S. soil. After putting these tariffs into action, Trump commented on Truth Social, saying, "If companies move to the United States, there are no tariffs!!!"

Background of the Situation

Key trading partners for the U.S. include Mexico, Canada, and China. Notably, Mexico and Canada tend to depend more on the U.S., which implies that the economic repercussions might be more substantial for them compared to the U.S. On the other hand, China holds the largest global trade share.

It all began on January 31, when Trump announced new tariffs: a 10% tariff on Chinese goods and a 25% levy on imports from Mexico and Canada, with the exception of Canadian oil, which faces a 10% tariff. By February 3, Canada and Mexico managed to negotiate a one-month delay by vowing to bolster their border security measures.

However, the 10% tariffs on Chinese products took effect on February 4. China’s reaction was swift, implementing retaliatory tariffs ranging from 10% to 15% on specific U.S. products such as energy products, automobiles, and agricultural machinery from February 10 onward.

Adding to the mix, on February 7, Trump halted tariffs on small packages from China which led to the U.S. Postal Service, in an attempt to comply with the tariff, briefly halting the acceptance of such packages. As per the new directive, packages valued below $800 from China can enter the U.S. without any tariffs.

Earlier, on February 1, Canada had announced its retaliatory tariffs. However, after a conversation with Trump, Canadian President Justin Trudeau decided to delay Canada’s tariffs on the U.S. for a month.

Looking Ahead

Canada has already implemented 25% tariffs on U.S. products worth C$155 billion ($107 billion). The initial C$30 billion of these tariffs commenced on Tuesday, with additional tariffs on C$125 billion to follow in 21 days.

President Claudia Sheinbaum of Mexico stated that Mexico would announce its own retaliatory tariffs on March 9. Meanwhile, China has responded by imposing tariffs on U.S. agricultural imports. This includes a 15% levy on chicken, wheat, corn, and cotton, along with a 10% tariff on several other products such as sorghum, soybeans, pork, beef, aquatic goods, fruits, vegetables, and dairy, starting March 10.

These retaliatory measures could escalate into a full-blown trade war, potentially increasing the prices of U.S. products abroad.

According to estimates from the Peterson Institute for International Economics (PIIE), the 25% tariffs on Mexican and Canadian goods may hinder growth and spur inflation in the U.S. Consumers might notice rising prices for goods originating from these nations and for U.S.-made products that rely on imported components from these regions.

Data from the Observatory of Economic Complexity (OEC) illustrate that Mexico’s primary exports to the U.S. include computers, cars, and vehicle parts. Conversely, the U.S. exports refined petroleum and motor vehicle accessories to Mexico. Canada sends crude petroleum, cars, and gas to the U.S., whereas the U.S. exports automobiles, refined petroleum, and trucks to Canada. As for China’s exports to the U.S., they range from telephones and computers to batteries and automobile components. The U.S., in return, mainly exports items like soybeans, cars, and both petroleum and integrated circuits to China.

Upcoming Tariffs

There are additional tariffs on the horizon. Trump plans to impose a 25% tariff on aluminum and steel on March 12 and is mulling over unspecified tariffs on foreign cars starting April 2.

On March 4, Trump hinted at a new agricultural tariff to be unveiled. He shared on Truth Social, “To the Great Farmers of the United States: Get ready to start making a lot of agricultural products to be sold INSIDE of the United States. Tariffs will go on external product on April 2nd. Have fun!” He didn’t specify which agricultural goods might be affected.

Review of Previous Tariff Announcements

• February 11: A 25% tariff on all steel and aluminum imports was announced, set to take effect on March 12. According to the International Trade Administration, the most significant U.S. steel importers are countries like Canada, Mexico, and steel-producing nations like Germany and South Korea. Trump emphasized that no trade partners would receive exemptions.

• January 27: Trump suggested future tariffs on products like steel, semiconductors, and pharmaceuticals, aiming to boost domestic manufacturing. This could see tariffs on Taiwanese semiconductors going as high as 100%. This suggestion could increase costs for electronic goods such as smartphones.

The Taiwanese government responded, stating the existing trade model is mutually beneficial, and Taiwan’s economy ministry referred to the semiconductor trade as "highly complementary." Taiwan Semiconductor Manufacturing Co. (TSMC), a global leader, announced a significant $65 billion investment in Arizona, aligned with the Biden administration’s CHIPS and Science Act, which supports U.S. semiconductor manufacturing expansions.

• January 20: Trump directed his administration to review trade agreements and explore establishing an External Revenue Service to manage trade-related revenue collection.