Trump’s Tariffs on Canada, Mexico Signal Focus on North American Free Trade Agreement

U.S. President Donald Trump (R) talks with Canada's Prime Minister Justin Trudeau during a meeting at Winfield House, London, on Dec. 3, 2019. Nicholas KammAFP via Getty Images

President-elect Donald Trump announced new tariffs, signaling to allies and adversaries that he is prepared to tighten America’s trade agreements.

Trump, who takes office on Jan. 20, said in a series of social media posts that he will slap a 25 percent tariff on all imports from Canada and Mexico. The purpose, Trump stated, is to pressure the two nations to clamp down on drugs and illegal immigrants crossing the border.

“Both Mexico and Canada have the absolute right and power to easily solve this long-simmering problem,” Trump wrote in a Truth Social post on Nov. 25. “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!”

About 80 percent of Canada’s and Mexico’s exports go to the United States.

Canadian Prime Minister Justin Trudeau confirmed to reporters on Nov. 26 that he spoke to Trump by phone soon after the announcement, describing it as “a good call.”

“This is something that we can do. Laying out the facts, moving forward in constructive ways. This is a relationship that we know takes a certain amount of working on and that’s what we'll do,” Trudeau said.

Canada’s premiers have urged Trudeau in a recent letter to hold an urgent first ministers’ meeting before Trump begins his second term.

Ontario Premier Doug Ford, who leads Canada’s most populous province and largest economy, warned that a 25 percent levy would be “devastating to workers and jobs” on both sides of the border.

“The federal government needs to take the situation at our border seriously. We need a Team Canada approach and response—and we need it now,” he wrote in a post on social media platform X.

Newly elected Mexican President Claudia Sheinbaum said on Nov. 26 that she is open to participating in talks on the issue.

However, Sheinbaum stated that her country had done a lot to slow the flow of immigrants and that drugs were a U.S. problem.

“One tariff would be followed by another in response, and so on until we put at risk common businesses,” Sheinbaum said.

“It is unacceptable and would cause inflation and job losses in Mexico and the United States.

“Dialogue is the best path to achieve understanding, peace, and prosperity for our two countries. I hope our teams can meet soon.”

President-elect Claudia Sheinbaum of "Sigamos Haciendo Historia" speaks to supporters after Clara Brugada received the validity of the election certificate as Mexico City Head of Government from the Electoral Institute of Mexico City at Arena Mexico in Mexico City, Mexico, on June 8, 2024. Hector Vivas/Getty Images

Trump separately detailed an extra 10 percent tariff  “above any additional tariffs” on all imports from China.

“I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States—but to no avail,” Trump stated.

It is unclear if this will complement Trump’s campaign proposal of 60 to 100 percent levies on all Chinese goods. Additionally, a wide range of Chinese goods are currently subject to 15 percent tariffs following Trump’s first trade war in 2018, with the Biden administration keeping these levies intact.

Eyes on Trade Agreements

Trump has been open about his aims to renegotiate the U.S.-Mexico-Canada Agreement (USMCA) free trade pact with Canada and Mexico after taking office.

Trump during his first presidency signed the USMCA—which went into effect in 2020—following several rounds of tense negotiations. The pact, which replaced the decades-old North American Free Trade Agreement, contains a six-year sunset provision, triggering a review in 2026. The three countries are required to confirm whether they will reexamine the deal or extend it.

In an interview with Fox Business host Maria Bartiromo, Trump said he would not eliminate the USCMA.

“I want to make it a much better deal. I want to take advantage, now, of the car industry,” he said.

His recent remarks suggest that he will include a broad array of issues that extend beyond trade, such as security and immigration, in bilateral or multilateral deals.

“I'll also seek strong new protections against transshipment so that China and other countries cannot smuggle their products and auto parts into the United States tax-free through Mexico to the detriment of our workers and our supply chains,” Trump said in a speech at the Detroit Economic Club in October.

“They smuggle this stuff in. They don’t pay anything. We’re going to have very strong language on that.”

Former Commerce Secretary Wilbur Ross said he thinks the USMCA needs some renegotiating as Mexico has failed to live up to several commitments.

Ross, the author of a new book “Risks and Returns: Creating Success in Business and Life,” said that Mexico failed to privatize its oil and gas sector and has politicized its judicial system.

Additionally, Ross stated that China has been establishing token factories in Mexico to avert existing and potential trade walls.

“I think there are some refinements that are very appropriate,” Ross told The Epoch Times.

“Some of the recent publicity about various thoughts that he has regarding tariffs are very possibly going to result in some good results, even before they’re enacted.”

Robert Marbut, the former executive director of the U.S. Interagency Council on Homelessness from 2019 to 2021 under the Trump administration, said Canada is not receiving a lot of attention for its role in the fentanyl trade.

China is producing the product and then shipping it into Canada and Mexico, relying on cartels and biker gangs to peddle the drug, he stated.

“I think when they [the incoming administration] start to see the intelligence briefings and the reports, they'll start to realize it,” he told The Epoch Times.

By revisiting the USMCA, Trump’s team will likely advocate for new or updated provisions that have become paramount to the United States in the last six years. The incoming administration could also reopen existing aspects of the pact that have resulted in ongoing strife, such as rules of origin for automobiles or dairy market access.

Thomas Cryan, an economic and tax historian and author of the new book “Disrupting Taxes,” says employing tariffs during trade negotiations can serve political and economic functions, whether facilitating onshore manufacturing or engaging in retaliatory elements.

At the same time, he says, a USMCA 2.0 might not be far different from the first edition.

“I think it’s going to be more of the same, meaning I think you might see some pushing and pulling,” Cryan told The Epoch Times.

Meanwhile, the early start to trade negotiations is in stark contrast to the current administration.

President Joe Biden is poised to become the first president since Jimmy Carter not to sign a free trade agreement. Instead, White House officials have sought multilateral economic cooperation in South Asia to stem Chinese influence in the region.

Market Reaction to Tariff Plans

U.S. financial markets were little changed during the Nov. 26 trading session, “again reminding investors that not all proposed policies are market friendly,” said Tom Essaye, the founder and president of Sevens Report Research, in a note emailed to The Epoch Times.

The blue-chip Dow Jones Industrial Average and the tech-heavy Nasdaq Composite Index were up about 0.3 percent heading into the closing bell.

The Canadian dollar and Mexican peso slumped 0.6 percent and 2.25 percent, respectively, against the greenback.

“Whilst most in the market assume that Trump will be using tariffs as a large bargaining stick—in this case to tighten US border controls—we would be careful of dismissing their market impact as some grandstanding,” ING strategists wrote in a note on Nov. 26.

Economists and think tanks have stated that higher tariffs could impact the world’s largest economy.

“The biggest risk is a large across-the-board tariff, which would likely hit growth hard,” said Jan Hatzius, the chief economist at Goldman Sachs Research, in a note emailed to The Epoch Times.

Still, according to the bank’s estimates, the United States will outperform other developed economies, growing by 2.5 percent in 2025 and 2.3 percent in 2026.

“Assuming that the trade war does not escalate further, we expect the positive impulses from tax cuts, a friendlier regulatory environment, and improved ‘animal spirits’ among businesses to dominate in 2026,” Hatzius said.

Market watchers have debated whether Trump’s tariff plans will rekindle the inflation flame.

Christopher Tang, an economist and scholar of global supply chain management, says tariffs are not a long-term solution and can raise the cost of doing business.

“I think that they [tariffs] would increase the price because the importers in the U.S. pay the tariffs, then they may have to pass the increase in cost onto the consumer, so therefore increase the price,” Tang said in a recent interview with The Epoch Times.

Others have pointed to Trump’s first term. Despite expectations that his tariffs would ignite price inflation, consumer prices were largely unaffected.

In other words, businesses did not pass the costs onto domestic consumers as they applied for exclusions or endured some of the tariffs. Consumer prices decelerated to 1.7 percent in late 2019 “after businesses adjusted to the trade war with China,” said Jeffrey Roach, the chief economist for LPL Financial.

“During Trump’s first presidency, he granted exclusions for over 2,200 products based on the businesses’ argument that tariffs cause considerable harm, or the foreign product is not available in the U.S.,” said Roach in a note emailed to The Epoch Times.

While there are concerns of a broader trade war, Ross said he is skeptical that such a scenario will unfold.

“In any event, I think the danger of an all-out, big trade war is very small,” he said.

The U.S. annual inflation rate ticked up to 2.6 percent in October.