“Trump Shifts Strategy: Why Focus Tariffs on Mexico and Canada?” | Money News
It’s widely recognized that Donald Trump has a particular fondness for tariffs. He even declared it his favorite word in the English language not too long ago.
What might confuse some, however, is his strong inclination toward imposing tariffs on Mexico and Canada. Remember, during his first term, his primary trade focus was on China.
Under Trump’s influence, hefty tariffs were enacted against China and Vietnam (often viewed as a transit point for Chinese products). In contrast, Canada and Mexico were offered a new trade agreement, replacing the long-established NAFTA.
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So, what prompted this shift? While Trump has consistently claimed that tariffs would deter Mexico and Canada from sending opioids to the U.S., a more compelling narrative is revealed through American trade statistics.
Post-tariff implementation during his first term, imports from China to the U.S. have significantly declined. Concurrently, imports from Mexico and Canada have surged, with Mexico now surpassing China as the largest importer to the U.S.
Trump detests trade deficits—where imports from a country exceed exports—almost as much as he adores tariffs. While economists view deficits as an inevitable aspect of a developed economy, Trump perceives them as a detrimental subsidy to foreign nations.
A Unique Perspective on the Economy
This is, to say the least, an unconventional outlook. Although credible concerns exist regarding the U.S. economy’s structure, its struggles to enhance the manufacturing sector, and the ramifications of Chinese overcapacity on global markets, deeming all deficits as inherently negative is peculiar. Nevertheless, this perception would make the U.S. trade relationship with Mexico seem unfavorable.
Analyzing the statistics reveals a significant increase in the trade deficit in recent years, and it’s not solely due to the U.S. importing vast quantities of Mexican oil. The U.S. is also bringing in many more cars from Mexico than it exports there.
This is largely a result of the new free trade agreement, which has prompted car manufacturers (including some American brands) to assemble vehicles in Mexico. There are also indications that the rising deficit with Mexico is partly influenced by shifts in the global trade system over the past five years.
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Historically, goods would travel directly from China to the U.S., but there’s evidence suggesting that many of those items are now being routed through “third countries,” including Mexico, primarily as components, which are then assembled into finished products for export to the U.S. This trend may even accelerate in the near future.
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Moreover, imports of cars from China to Mexico have been increasing rapidly in recent years.
In summary, intriguing dynamics are unfolding in international trade that have certainly caught the attention of officials in the White House.
What Lies Ahead?
What potential impacts would the tariffs have? Generally, economic models indicate that such measures would likely drive inflation up and hinder economic growth. In essence, they would be detrimental, especially if applied broadly across most goods.
However, given Trump’s unpredictability, there remain significant uncertainties regarding how these tariffs would actually be enforced. The trade landscape is becoming increasingly tumultuous.
