JUST IN
Trade war shots fired. US President Donald Trump today announced tariffs on Canada, Mexico, and China—the United States’ three largest trading partners. The tariffs, 25 percent on Canada and Mexico and 10 percent on China, were issued based on Trump’s declaration of a national emergency over drug trafficking and illegal migration. How will the tariffs impact the four countries’ economies? And how might Canada, Mexico, and China respond? Our experts explain below.
TODAY’S EXPERT REACTION BROUGHT TO YOU BY
- Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund
- María Fernanda Bozmoski (@MariaBozmoski): Director of impact and operations and lead for Central America at the Council’s Adrienne Arsht Latin America Center
- Joseph Webster (@Joe_Webster_CRR): Senior fellow at the Council’s Global Energy Center
For China, relief
- Given Trump’s earlier threats to impose 60 percent tariffs on Chinese goods, “China is likely breathing a sigh of relief,” Josh tells us. Policymakers in Beijing must be wondering why the United States “tariffed its allies at 25 percent and its greatest economic challenger at 10 percent.”
- One likely reason for this, Josh argues, is Trump’s desire to keep inflation down in the wake of the higher tariffs on Mexico and Canada since “there’s only so much price pressure US consumers are going to put up with.” Another factor, he notes, is that China is far less dependent on US trade than are Mexico and Canada.
- Faced with the tariffs, China “has a trick up its sleeve: currency devaluation,” Josh says. “Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates.” If this works, Josh expects that China’s “rhetoric will be sharp” but that its “economic retaliation will potentially be more muted.”
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For Mexico, an economic blow
- The 25 percent tariffs on Mexico are “counterproductive to Trump’s goals of curbing immigration to the United States,” argues María, in part because the policy will “weaken the Mexican peso and the country’s economy.”
- The tariffs will also have a significant impact on the United States-Mexico-Canada Agreement (USMCA), María notes. She says that their implementation will “quickly erode the economic growth and interdependence” that directly resulted from the USMCA, along with gains in securing supply chains.
- Instead, María tells us, the relationship between the two countries is shifting, with the White House tariff announcement even accusing Mexico’s government of having an “intolerable alliance” with drug gangs. “This marks the first time in decades that US-Mexico economic collaboration has been so explicitly dependent on security concerns.”
For Canada, defining “energy” will be crucial
- Trump’s executive orders place a 10 percent tariff on Canadian “energy resources,” as compared to the 25 percent levy against all other Canadian goods. Joe says that “the impact on energy markets will depend on the tariffs’ duration and the definition of ‘energy resource.’”
- For example, “if the lower rate excludes imports of electricity, batteries, and minerals,” Joe explains, this could have a negative impact on a range of US markets, including electricity, batteries, defense technology, artificial intelligence, and drones.
- What is clear, says Joe, is that “US refineries will now pay higher prices for Mexican and Canadian crude in the wake of tariffs.” Refineries in Midwestern states will be hard-hit by the tariffs, Joe points out, since “they have few if any alternatives to Canadian crude oil and will pass along many costs to consumers.”
Further reading
Sat, Feb 1, 2025
Experts react: Trump just slapped tariffs on Mexico, Canada, and China. What’s next?
New Atlanticist By
Our experts explain the economic and geopolitical implications of the US tariffs on Mexico, Canada, and China.
Thu, Jan 30, 2025
Tariffs on Canada and Mexico could hurt Trump’s quest for US energy dominance
New Atlanticist By David L. Goldwyn, Joseph Webster
A trade war against Canada and Mexico could affect US energy prices and have significant geopolitical ramifications.
Thu, Jan 16, 2025
Trump has an advantage in upcoming USMCA trade talks. Here’s how his team can use it.
New Atlanticist By Sophia Busch
The Trump administration should take stock of the economic leverage—and dependencies—the United States has with Mexico and Canada ahead of 2026.
Image: US President Donald Trump speaks about the aviation disaster during a press conference in Washington DC, on January 30, 2025, at the Brady Briefing Room/White House. Photo by Lenin Nolly/NurPhoto.