Donald Trump just sent a shot across the bow of our two closest neighbors. In a series of Truth Social posts, Trump said that he would slap 25% tariffs on all goods from Canada and Mexico. Interestingly, he also threw China into the mix, yet with a lower tariff rate of 10%.
“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem,” Trump posted. “We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
In other words, as the businessman that he is, Trump is flexing his enforcement muscles with an eye toward getting a deal done that will serve both America’s interests as well as Canada’s and Mexico’s. This is designed to get our trading partners to the table. It’s the Art of the Deal. Trump is using America’s biggest asset, the world’s leading economy, as a weapon in order to get things moving his way before he even takes office. He’s signaling that the rules of the game are about to change, and if America’s neighbors don’t want to lose out, then they need to adjust now.
At issue for Trump are both border security and the cartel-driven fentanyl crisis, for which he believes there is plenty of blame to go around in addition to that borne by Joe Biden and Kamala Harris.
Trump has also made it clear that he wants to bring manufacturing back to the U.S. He sees this not just as an economic positive but also, correctly, as a national security issue. It wasn’t all that long ago that big box stores like Walmart proudly advertised “Made in America.” Trump, along with the majority of Americans, wants to see those days return.
Trump wants our nation’s free-trade agreement with Canada and Mexico reworked to address the rising threat of China’s influence and its underhanded role in our fentanyl crisis — specifically, its supplying of the chemicals used by the Mexican cartels to make the drug. “This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” he wrote.
Predictably, Mexican President Claudia Sheinbaum pushed back, claiming, “Threats and tariffs won’t be the way to address the migration phenomenon or drug use in the United States. One tariff will be followed by another, and so on until we put companies at risk.” In other words, expect retaliation.
Within the U.S., a number of economists worry that Trump’s protectionism could work negatively against the economy. “Trump’s clear determination to use tariffs as a tool of international diplomacy will have significant disruptive effects on U.S. and global trade,” says Cornell University economics and trade policy professor Eswar Prasad.
The fact that this latest tariff threat focuses on Canada and Mexico is interesting given that during his first term, Trump reworked the old NAFTA trade agreement, which he called the “worst trade deal ever made,” changing it to the USMCA. Now, he’s looking to revisit that agreement to include immigration and drug control.
While free-market economists are wary of tariffs’ negative impact on the price of goods in the U.S., they are also not running to the fainting couches to suggest that Trump’s actions will tank the economy. Instead, they seem to be starting to see that he’s engaged in negotiations to bring about some needed course correction.
[…]
