President Elect Trump announced on social media yesterday that he intends to impose a 25% tariff on all goods entering the US from Mexico and Canada on his first day in office as a response to illegal drugs and immigrants entering the US from these countries. He also said he would implement an additional 10% on all imports from China, though no date was specified.
In terms of Canada and Mexico, this announcement is an escalation of earlier Trump campaign statements that proposed 10% – 20% tariffs on all imports from all countries, is a significant development in terms of the intended timeline, and would break with the first Trump presidency’s USMCA trade agreement.
Timeline
It may be unlikely that tariffs like these could actually go into effect on January 20th even if Trump initiates these moves on his first day.
The process for implementing tariffs via sections of law from the various trade acts Trump has relied upon for tariffs in the past require a longer timeline, sometimes several months, from start to implementation though do not generally require approval from congress.
- Section 232, which Trump relied upon for steel and aluminum tariffs, requires a Department of Commerce investigation and affirmative determination of the appropriateness of tariffs before the president can impose a new tariff via this law.
- Section 301, which Trump used to introduce tariffs of 7.5% to 25% on $380B worth of Chinese goods, requires an investigation and recommendation from the US Trade Representative before the president can implement a new tariff.
- Section 201 which Trump used for tariffs on washing machines and solar panels, requires a petition to the US International Trade Commission, an investigation and findings affirming the use of tariffs before approval.
Timeline for Section 232 of the Trade Expansion Act of 1962
Source: Congressional Research Service
Potential Impacts
Higher Costs of Goods: Following tariff introductions we could also expect the higher importing costs to be mostly passed on to consumers.
In September Canada and Mexico accounted for $79B of imports to the US with Canada making up 12% of total imports and Mexico 15%.
They are significant exporters of vehicles – Mexico is the largest exporter of cars to the US – and automotive parts, with most US crude oil imports coming from them, especially Canada. So price increases could be expected in these categories the most following tariff hikes.
Logistics: Just as they did ahead of tariff rollouts in 2018, US importers from China may have already started frontloading ahead of potential tariffs, as suggested by the National Retail Federation increasing their November and December projections for US ocean imports by 9% just following Trump’s victory.
This pull forward of demand leads to increased volumes and freight rates ahead of tariff introduction, and lower volumes and rates following.
So we could expect increases in cross-border traffic and road and rail rates from Canada and Mexico this time as well.
Trade Volumes: Tariffs on China resulted in a decrease in Chinese imports to the US since 2018, with Mexico seeing their trade with the US increase as a result (though Chinese exports to Mexico, often ultimately bound for the US also increased).
So following actual tariff introductions, we could see some shift to other foreign sourcing partners where possible.
