Good morning. The Trump administration announced tariffs on the three largest trading partners of the U.S. on Saturday, with the import duties going into effect on Tuesday.
The executive order imposes a 25% tariff on imports from Mexico and Canada, and 10% on goods from China, with the stated purpose of holding those countries "accountable for their promises to halt the flood of poisonous drugs into the United States,” according to the White House. Canadian energy imports, however, will be subject to a lower duty of just 10%—reflecting the reality that U.S. homeowners rely heavily on their northern neighbor for oil and electricity.
President Donald Trump said that Americans may experience economic "pain" as a result of the tariffs. “Will there be some pain? Yes, maybe (and maybe not!)” he wrote on Sunday on Truth, his social media platform. “But we will make America great again, and it will all be worth the price that must be paid.”
Former Treasury Secretary Lawrence Summers commented on Sunday about the potential impact of tariffs. "Jobs in the industrial heartland will be lost as American producers can’t compete due to higher input costs," he wrote in an X post.
Deploy tariff mitigation strategies
The tariffs on Canada, Mexico, and China should be seen as “transactional” and “tactical,” according to Dan Ujczo, a senior counsel in the law firm Thompson Hine’s international trade and transportation practice groups. The tariffs are designed to use the leverage of access to the U.S. consumer to achieve specific policy objectives, "in these instances stopping undocumented migration and fentanyl trafficking across the borders”, Ujczo told me in an email on Sunday.
“These are designed to be short in duration, hopefully, once those objectives are achieved,” he said.
Ujczo added that even if Trump's agenda is transactional, companies operating outside of his tariff wall should also “batten down the hatches by deploying tariff mitigation strategies—the storm is coming, and very soon.”
He added: "It is near certainty that President Trump will issue more tariff and trade actions throughout the first and second quarters of 2025."
The next set of tariffs will be “transformational” and a core part of Trump’s trade and economic policy, he explained. “These include tariffs targeting specific sectors such as a renewed review of steel and aluminum, oil and gas, semiconductors, copper, pharmaceuticals, and other areas of strategic importance,” Ujczo said. Trump is also highly likely to impose Global Supplemental Tariffs that will be flat tariffs on all countries with which the U.S. has a trade deficit, he said.
“The objectives are to reduce the trade deficit, establish reciprocal trade and generate revenue to assist with the planned tax cut extensions,” he explained.
'Multiple scenarios'
During earnings calls last week, some C-suite leaders weighed in on the potential impact of tariffs on China, Canada, and Mexico. Those included Vaibhav Taneja, CFO of Tesla, where Elon Musk is CEO.
"Over the years, we've tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses," Taneja said during Telsa's Q4 2024 earnings call on Jan. 29. "The imposition of tariffs, which is very likely, will have an impact on our business and profitability."
During General Motors’ Q4 2024 earnings call on Jan. 28, CEO Mary Barra, said the company has been “studying multiple scenarios” regarding tariffs. “We're doing the planning and have several levers that we can pull,” Barra said.
The tariffs on Canada, Mexico, and China are just the beginning, Ujczo said.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
