by Jim Rickards, Daily Reckoning:
It’s game on for the trade wars.
After months of threatening tariffs on U.S. trading partners during his 2024 presidential campaign, Trump has now taken definitive action on that front. Let’s review.
The Beginning
On Saturday, February 1, Trump announced that the U.S. was imposing 25% tariffs on all goods imported to the U.S. from Mexico and Canada (with the exception of Canadian energy, which was tariffed at 10%) and additional 10% tariffs on all goods imported from China.
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These new Chinese tariffs were on top of tariffs Trump imposed on China in 2018, many of which were left in place during the Biden administration. All of these new tariffs were to take effect on Monday, February 3rd.
Boom!
Or was it?
The Mexican Concession
On February 3rd, within hours of the scheduled deadline for the new tariffs, Trump reached an accommodation with Mexico. President Claudia Sheinbaum agreed to surge 10,000 Mexican troops to the U.S./Mexican border both to prevent illegal immigration into the U.S. and to curtail the flow of fentanyl across the border. (Trump had already surged 5,000 U.S. troops to the border for the same purpose. Reportedly illegal border crossings have already declined 96% compared to the Biden administration).
In return, Trump agreed to postpone application of the Mexican tariffs for 30 days while the two sides discussed other actions and accommodations. The new deadline for tariffs is March 3, 2025.
Canada Follows Suit
Trump also spoke with Canadian Prime Minister Justin Trudeau on February 3rd. Trudeau did not initially make any concessions but late in the day on February 3rd he made the same offer as Mexico – 10,000 troops on the border and additional efforts to stop the flow of illegals and fentanyl. Trump accepted the offer and extended imposition of tariffs on Canada by 30 days.
But Trump Raises the Stakes
These delays did not mark the end of the tariff confrontation.
Beijing announced they were imposing retaliation tariffs on U.S. goods, including a 15% border tax on imports of U.S. coal and liquefied natural gas products. There is also a 10% tariff on American crude oil, agricultural machinery and large-engine cars.
Trump answered by imposing a 25% tariff on all steel and aluminum imports into the United States. This will have a major impact on Canadian steel imports as shown in the chart below.
Source: Statista
Trade Wars Gone Global
In addition to the Mexican, Canadian and Chinese tariffs, Trump announced that EU tariffs are coming soon. Trump tentatively indicated that the EU tariffs would be 10% across the board. Trump seemed more relaxed about UK tariffs but given UK Prime Minister Keir Starmer’s tilt toward the EU lately, it may be the case that the UK is lumped in with the EU when it comes to tariffs on European trading partners.
Of course, all of these tariffs would come on top of the severe financial sanctions on Russia that have been in place since 2022 as a result of the War in Ukraine. Once retaliation is added to the original tariffs, it’s clear that a full-scale global trade war is now underway.
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