Toronto – Decades of commercial integration in North America have been on the verge of a major interruption due to the fares that President Donald Trump wants to impose on Canada and Mexico, the main business partners of the United States, starting this Saturday (1st).
And while tariffs should cause pain to all three nations, they would cause more damage to Canada and Mexico, smaller economies that depend deeply on the United States.
Employees from both countries breathed a brief sigh of relief on Monday, when Trump did not include rates in his avalanche of executive orders on the first day of his term. But the relief was short -lived: later that night, Trump told reporters still planning to seek tariffs.
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“We are thinking of 25% for Mexico and Canada,” Trump said at the Oval Hall. “I think we’ll do it on February 1st.”
Trade experts are evaluating whether tariffs will materialize or if the threat alone is a negotiation tactic designed to gain concessions from Mexico and Canada. Both countries have avoided high tariffs during the first Trump administration, and both are betting that the United States need Mexico and Canada to face China, a much larger rival.
Economists and policy makers claim that tariffs would cause loss of income and jobs and force consumers to pay more for many products.
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On Monday, Trump signed an executive order directing federal agencies to carry out a comprehensive review of US business policies, which could result in new actions against Mexico and Canada.
Tariffs Trump probably would be answered with retaliatory fares of Canada and Mexico, and would dismantle production lines and intimately integrated supply chains throughout North America.
More than $ 1.5 trillion in items would be at stake – the total value of all goods marketed between the United States and Canada, and the United States and Mexico. (This is the total value of 2023 of these commercial relations, the latest available, according to US government data.)
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Economists predict that the initial effect would be negative for all three nations, which are linked by a free-trade agreement known as the USMCA (United States-Mexico-Canada).
The negative effect is complicated to translate into concrete numbers: not only is it clear exactly which Trump items would mira and how Mexico and Canada would respond, but the consequences can change over time, including an increase in inflation as goods They become more expensive, loss of jobs and a retraction in spending as consumers care about reducing income.
And governments often intervene to mitigate some of these negative effects. Canadian government officials have already said they would consider rescuing companies and supporting more affected workers.
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But some industries would be quickly affected: agriculture, cars and power suppliers, pillars of the three economies, would be destabilized by comprehensive tariffs.
USA
Some sectors of industry in the United States could well receive a 25% tariff on Canada and Mexico goods – for example, American tomato producers and other seasonal fruits and vegetables that have difficulty competing with their Mexican counterparts.
But most industries would be severely impacted by the economic interruption of such high tariffs.
Even groups that could prefer more protections against Mexican exports, such as US auto industry workers, could be harmed if the tariffs suddenly made the car supply chains stop. Both the United Auto Workers and the United Steelworkers International Union also extend through the US-Canada border and include members in Canada, which means that they usually oppose any restrictions on Canadian exports.
Since the United States is the largest economy in North America and less dependent on trade, the proportional effect on the US economy would be lower than in Mexican or Canadian economies.
But rates would increase prices for consumers and add inflation. American families and companies could expect to pay higher prices for a variety of goods subject to tariffs, including avocados, beer, steel, cars and oil.
These higher prices would discourage purchases and probably would slow down the economy. Researchers at Peterson Institute for International Economics in Washington estimate that a 25% rate on all Mexico and Canada exports would reduce US GDP by about $ 200 billion during the second Trump administration.
US industries that export to Canada and Mexico would also be presumably impaired if these countries imposed tariffs on US goods. The Canadian government planned to direct Florida’s orange juice, Tennessee whiskey and Kentucky peanut butter, while the Mexican government was elaborating its own retaliation plans.
Canada
The commercial relationship between the US and Canada is characterized by some impressive facts that highlight the nearby economic, industrial and commercial bonds among countries.
About US $ 2.5 billion in goods are marketed on the border every day, becoming a commercial ratio of $ 800 billion per year.
For the auto industry, the US-Canada border can often seem irrelevant, with a single vehicle crossing back and forth up to eight times before being fully assembled.
Canada exports 80% of its oil to the United States, which obtains half of its oil imported from Canada. And Canadian energy supplies houses and companies throughout the United States, especially in New England, where Quebec exports hydroelectric power.
And Canada sends other crucial commodities to the United States, such as potassium, which is used in fertilizers, and uranium, which is necessary for nuclear energy production.
If Trump seeks tariffs, the repercussion would depend on how extensive they would be or if certain Canadian goods, such as oil, could be exempt. But the consequences for Canada could be devastating.
Economists predict a loss of 2% to 2.6% in economic production annually. More than 1 million Canadian jobs would be at risk, including about half a million in Ontario’s auto industry, according to the province’s Premier Doug Ford.
If tariffs were imposed on Canadian energy and retaliation Canada limiting oil exports, the effect would be felt throughout the country, particularly in Alberta, the Canada export center.
Alberta’s provincial leader rejected a federal government plan that would use oil as a lever to press the Trump administration to retreat from imposition of tariffs.
Mexico
Mexico stands out among the big economies for their dependence on trade with the United States, sending about 80% of their exports to their neighbor, with many from factories operating 30 miles from the border.
Because these factories are predominantly focused on serving the US market, this makes Mexico much more vulnerable to tariffs than a large industrial economy such as Germany, which can reorient its exports to a variety of markets.
25% rates would be devastating to Mexico, said Marcus Noland, executive vice president and director of studies at the Peterson Institute for International Economics.
“In practice, this would start a process of Mexico’s deindustrialization,” he said.
Naland estimated that such rates could reduce Mexico’s economic production growth by about 2 percentage points, potentially resulting in large closures of factories and job losses. The auto industry, which employs more than 1 million people in Mexico and strongly depends on complex supply chains that move parts on the border, could be especially vulnerable.
Other sectors of the Mexican economy could face severe pressure on high tariffs. Automobiles, computers, cables, phones and medical instruments are among Mexico’s largest exports.
Mexico’s ability to soften the impact of tariffs is also limited due to budgetary challenges, said Kimberley Sperrfechter, an emerging market economist at the capital Economics in London, citing a 2024 budget deficit that reached his highest level in decades.
One sector of the Mexican economy that could benefit from tariffs is the tourism industry. If the rates are imposed, the country’s currency, the weight, could devalue, said Sperrfechter, making Mexico even more attractive to American tourists, who represent the largest group of international visitors in the country.
“But,” she added, “this is unlikely to compensate for the impact on other sectors.”
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