America’s biggest trading partners are bracing for Donald Trump to impose sweeping tariffs on their exports after the US president repeated his threat to hit Canada and Mexico with new duties.
Officials in Ottawa and Mexico City have drawn up plans to retaliate against Washington with tariffs of their own, raising the prospect of a damaging trade war. Businesses inside the US and across the world have warned of widespread disruption if the Trump administration pushes ahead.
Trump repeatedly pledged on the campaign trail to use tariffs to revive the US economy, disregarding many economists’ concerns that imposing higher duties on goods from overseas would exacerbate inflation, rather than rapidly bring down prices, as the president has promised.
While the Trump campaign mooted a universal tariff on all foreign goods, the Trump administration has so far opted to target specific US trading partners. The president has made clear that China and the European Union are in his sights, but has so far focused on America’s closest neighbors.
Weeks after his election victory last November, Trump announced on his own social network that upon his return to office he would “sign all necessary documents” to impose a 25% tariff on Mexico and Canada. Mexico must stop “illegal aliens” from crossing its border with the US, he said, and Canada must halt the flow of drugs like fentanyl. “Until such time that they do, it is time for them to pay a very big price!”
Trump did not, in fact, sign these documents following his inauguration. Instead, he introduced a deadline – 1 February – by which both countries are supposed to resolve his concerns.
Asked about the deadline on Thursday, he said: “We may or may not. We’re going to make that determination probably tonight.”
Claudia Sheinbaum, the Mexican president, has already taken Trump through the various migration initiatives her government has undertaken. Experts have raised questions over Trump’s demand from Canada, with so little fentanyl entering the US through its northern border that the US Drug Enforcement Administration (DEA) omitted to even mention Canada in a 2020 report.
Unswayed by such details, in recent weeks Trump has claimed his administration will raise “hundreds of billions of dollars, and even trillions of dollars” through tariffs that would boost the US economy. He has spoken of establishing an “external revenue service” to collect the money.
While he and his allies continue to talk up tariffs as a viable financial revenue stream for the US, Trump – who as both politician and reality TV star has spoken highly of his dealmaking prowess – has previously raised them as a negotiating tactic, only to withdraw the threat.
This strategy played out less than a week after his inauguration, when the White House threatened Colombia with tariffs and sanctions as punishment for its refusal to accept military flights carrying deportees. Colombia later agreed, and the threat was withdrawn.
In Canada, ministers have expressed optimism that a resolution by Saturday remains possible. “I remain hopeful we’re going to be able to solve this. We’ve been doing it for 150 years together,” David McGuinty, the public safety minister, told reporters. “I don’t see why we can’t do it now.”
Since Trump’s initial social media post about the Canadian border, officials in Ottawa have pledged to spend C$1.3bn for new measures, including the use of two Black Hawk helicopters and 60 drones.
But it stands ready to hit back. A first round of retaliatory tariffs would cause minimal damage to the US, covering C$37bn of its exports to Canada, and if needed, Canada’s federal government plans to escalate by imposing tariffs on C$110bn worth of goods.
“The reality is that a large, uncontrolled bully is using his position as the most powerful political leader in the world, to put pressure on a whole range of allies,” said Lawrence Herman, an international trade lawyer and senior fellow at the CD Howe Institute. “We have to, in Canada and the rest of the world, recognize that we’ve entered a new era.
“With the Trump administration, there are no rules. There is no respect for international treaties or agreements. There is no longer value to the US signature on international documents.”
In Mexico, meanwhile, the government has sent signals it is prepared to do more on migration and fentanyl trafficking – even notching up a record seizure soon after Trump’s threats began – but it has also sought to play down the prospects of a trade war.
“We don’t think [the tariffs] will happen. And if they do, we have our plan,” Sheinbaum said on Wednesday.
“People are worried here, and there is a sense of uncertainty – which is what Donald Trump seeks to create,” said Kenneth Smith Ramos, Mexico’s former chief negotiator during talks over the USMCA free trade deal, struck between the US, Mexico and Canada during the first Trump administration.
“It’s a bit like a game of chicken: the two cars are hurtling towards each other at top speed,” he said. “Mexico has to send the signal that its car is not a little one but a big one that could also hurt the United States.”
Exports account for roughly 40% of Mexico’s gross domestic product (GDP), and more than 80% of them go to the US. While the country would try to diversify its export markets in the event of an economic dispute with the US, “you’re never going to be able to replace the US market with any other country”, said Smith Ramos.
Ministers have stressed that “cool heads” are required in the face of Trump’s public threats and declined to disclose their plan of action if tariffs are imposed. “But you can be sure we have studied it a great deal,” Marcelo Ebrard, the Mexican economic secretary, said recently. “There will be no surprises, nor untimely reactions.”
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