US Slaps Tariffs on its Top Three Trade Partners

Newly inaugurated President Trump signed an Executive Order to impose 25% tariffs on Canada and Mexico, and added another 10% to tariffs on goods from China. The tariffs come into effect at the beginning of February 2025 and are legally permissible under the US International Economic Powers Act.

These three countries are the top trading partners of the USA and together account for nearly half of the USA international trade. The US market accounts for nearly 80% of exports from both Mexico and Canada. All three countries enjoy significant trade surpluses with the US, which Trump qualifies as ‘taking advantage of the US.’

Canada and Mexico felt a little surprised to be slapped with tariffs and both are actually in a free trade zone with the USA under the #USMCA #FTA. China and USA are embroiled in a trade war which has been ongoing for several years now.

Trump claims that the main rationale for the tariffs is to redress the trade imbalance. In addition, he points fingers at Mexico and Canada for not doing enough on the illegal migration and illicit drug trafficking fronts. Trump also accuses China as being the world’s largest exporter of #fentanyl, a potent synthetic and cheap opioid.

Canadian PM Justin Trudeau retorted that the share of illegal migrants and fentanyl coming from Canada is less than 1% and a tariff war is not way to treat ‘a close neighbor and long-standing ally.’ Nevertheless, Canada will not take the tariff lying down. On Sunday 2 February 2025, PM Trudeau announced retaliatory 25% tariffs on American goods. The first hike will impact USD 30 billion worth of American products and could be extended to another USD 125 billion in 21 days.

The USA did make an exception on Canadian oil and gas which will be levied only 10% of duty. Indeed, many US cities and regions near the Canadian border depend heavily on Canadian energy for their power and heating needs. Trump has also floated the idea of making Canada the 51st state of the USA, but Trudeau has also retorted that Canada is not for sale.

Mexico has emerged as the industrial base for the US thanks mainly to its large and cheap labor pool. Even US companies have relocated to Mexico as part of their strategy to lower costs and to remain competitive. Mexican President Claudia Sheinbaum vows too impose retaliatory tariffs on USA. It is said that Sheinbaum and Trudeau consulted each other on the matter.

China has experienced several tariff hikes since the trade war with US started in 2018. So although the quantum of 10% may appear small, the cumulative tariff rate on Chinese products is quite large. China responded it will take ‘appropriate countermeasures’ including lodging a complaint with the #WTO.

China is pretty much the factory of the world and is the top trading partner of the majority of countries in the world. Therefore, Chinese exports are highly diversified, but the US remains a significant market as it alone represents a sizeable15% of its global exports. As the trade war rages on, Chinese manufacturers have taken mitigation measures and invested heavily in Mexico, Vietnam, Morocco, and even India, as a workaround to the tariff barrier.

As a way hedging, US importers, such as Walmart, have been frontloading their orders prior to the expected hike in tariffs, but that can only relieve the pain in the short term. Trump has also made public his intentions to slap tariffs on EU and BRICS countries, but no timeline or quantum have been confirmed yet.