Trade wars begin

Trump confirms 25% tariffs on Canadian and Mexican goods as well as 20% tariffs on Chinese goods.

After a month’s respite after Trump had brought the respective countries’ leaders to the negotiating table, the US President is now following through with his threatened import tariffs. This is in response to what the White House perceives as an unacceptable flow of illegal immigrants and drugs, particularly fentanyl, through their northern and southern borders.

The three countries targeted are the US’s top trading partners, collectively comprising approximately 46% of its total trade (US census). The affected are already planning retaliation, sparking fears of a trade war. Nevertheless, Trump lowered the levies on the 4th March, saying “No room left for Mexico or for Canada”.

Immediately the stock market was provoked into a negative response, as three major indices in the US - the Dow Jones National Average, the S&P 500 and the Nasdaq - fell by 1.4%, 1.75% and 2.6% respectively.

More grievous is the Canadian response, outlined by Prime Minister Trudeau as a 25% tariff on American imports, which will be levied in a staggered schedule. Already a tariff on C$30 billion worth of goods is in motion. Trudeau believes that the 25% tariff levied by Trump, as well as the 10% on Canadian energy, is unjustified. His administration believes that the distribution of fentanyl from Canadian sources is “not an issue” - since less than 1% of the illegal opioid is conveyed through the Canadian-US border. This figure has also declined since Trump and Trudeau last held discussions on trade back in January and early February.

Much of the drug is delivered by Mexican cartels at the southern border. Last month, Mexican President Claudia Sheinbaum ceded to Trump’s demands to police the border by deploying her own National Guard. It seems this has not been enough to prevent Trump from installing his tariffs. Sheinbaum appeared to send a message to the US administration at a public event in Colima as she said that in regards to Mexico’s international standing; “Cooperation and coordination, yes, subordination, never”.

China’s commerce ministry has also voiced its concerns. On the 4th March, they vowed retaliation, accusing Trump of attempting to “blame and bully” Beijing as a source of fentanyl flows. They regard the tariffs as “unreasonable and groundless, harmful to others”. China has now imposed a 15% levy on US agricultural exports, and are set to introduce further restrictions.

Yet what will be the effect on the US economy? Whilst Trump believes the measures will support the creation of jobs in ailing industries, such as manufacturing, many retailers will find the price margins on imported goods rapidly squeezed. The Yale Budget Lab predicts that household costs may rise between $1600 to $2000, disproportionately affecting those at the lower end of the economic spectrum. This study also takes into particular account that Mexico compromises half of the US' fresh fruit and vegetable imports.

These recent developments seem to predicate the outbreak of a trade war - in the midst of pressing times. Fears circulate over the West's support for Ukraine dividing over the Trump Administration's divergent policies. Canada, crucially, is most afflicted - Trudeau lashed out on Tuesday, labelled Trump's tariffs as a "dumb" decision against "the US' closest ally and friend". Many also speculate that these moves may also encourage China to shift attention and favour towards the European Union, as CCP spokesmen commence new charm offensives on the trade bloc.

Trump's tariffs, a month ago, felt likely to dissipate. Now there is risk they threaten to embroil a full-blown trade war and carve rifts within the West.