ATLANTA — With the possibility of a multi-front trade war looming over the January inauguration of President-elect Donald Trump, tariffs are the name of the game for economic forecasts.
The president-elect has already said he plans to impose higher tariffs on three countries: 60% tariffs on China and 25% tariffs on Canada and Mexico, both of whom are part of the U.S.-Mexico-Canada Agreement, which replaced the NAFTA economic deal during the previous Trump administration.
“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump said in a post on Truth Social, the social media platformed he owns.
While the 25% tariffs on Canada and Mexico were announced after the election, Trump’s plan to place a 60% tariff on Chinese products was a repeated policy goal in the lead-up to the election, mentioned while he campaigned. In a separate and more recent post to his social media platform, Trump said he plans to place a higher tariff against all Chinese goods coming to the U.S., in addition to the higher tariffs he already plans to enact.
“Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” Trump posted.
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What’s a tariff and how do they work?
A tariff is a tax on any products that come across national borders. This could be anything from popular and stereotypical products like avocados or tequila from Mexico to maple syrup from Canada. The American economy has for years now relied upon less expensive manufacturing in other countries, like China, to bring less costly goods to U.S. consumers.
Under Trump’s economic plan, which he says he will enact upon inauguration, all of those products would see higher tariffs, which means the costs once they get into the United States could be going up, possibly significantly.
Import tariffs, which these would qualify as, typically end up as cost passed on to consumers, according to the Tax Foundation.
“While tariffs are often described as a tax on foreign businesses and do place an economic burden on foreign exporters, the costs are often borne by consumers in the country that is imposing them,” the Tax Foundation says in an explainer on tariffs, adding that “Tariffs are taken out of business revenue before it is distributed as compensation to factor inputs (workers and capital). This creates a wedge between what workers and capital produce and the amount they receive; in other words, a wedge between the consumer price and the producer price.”
How have the other countries reacted to Trump’s tariff plans?
The threat of tariffs to Canada and Mexico in particular complicates international trade agreements already in place, due to the tariff-free agreement created between the U.S. and those allies through the USMCA from Trump’s previous term in office. As part of the agreement, simply imposing tariffs on member nations is forbidden, so the addition of tariffs as planned by the incoming Trump administration’s effects are unclear.
Reactions to the proposals from Canada, Mexico and China have been mixed.
While Canadian officials were critical of the tariff increases being proposed, Prime Minister Justin Trudeau said he was willing to work with Trump to find a way forward.
“We talked about the intense and effective connections between our countries that flow back and forth. We talked about some of the challenges that we can work on together. It was a good call,” Trudeau said, according to the AP.
Separately, Mexican President Claudia Sheinbaum said Tuesday that if the 25% import tax is enacted on Mexican goods, the U.S.’s southern neighbor would retaliate economically in kind. She said that Mexico had acted to slow the flow of migrants to the U.S. and that “caravans of migrants no longer reach the border.”
Instead, Sheinbaum said the flow of weapons from the U.S. had caused suffering in Mexico as well.
“China-US economic and trade cooperation is mutually beneficial in nature. No one will win a trade war or a tariff war,” Chinese representative Liu Pengyu said on X, also pushing back on Trump’s claims of the country’s involvement in narcotics trafficking. “The Chinese side has notified the US side of the progress made in US-related law enforcement operations against narcotics. China has responded to [the] US request for verifying clues on certain cases and taken action. All these prove that the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality.”
What products and items are most likely to be impacted by the higher tariffs?
The U.S. Census Bureau reports that, as of September, the trading partners that the U.S. imports the most goods from are Mexico ($378.9 billion), China ($322.2 billion) and Canada ($309.3 billion), when ranked by value of what’s being imported.
For each of those countries, Trading Economics reports the five biggest imports, as of November, coming into the U.S. from each country are:
- Vehicles (other than railway or tramway) – ($130.03 billion)
- Electrical and electronic equipment – ($85.56 billion)
- Machinery, nuclear reactors, boilers – ($81.62 billion)
- Mineral fuels, oils, distillation products – ($25.01 billion)
- Optical, photo, technical, medical apparatus – ($22.33 billion)
- Electrical and electronic equipment – ($126.68 billion)
- Machinery, nuclear reactors, boilers – ($85.89 billion)
- Toys, games, sports requisites – ($33.39 billion)
- Furniture, lighting signs, prefabricated buildings – ($20.29 billion)
- Plastics – ($20.16 billion)
- Mineral fuels, oils, distillation products – ($131.91 billion)
- Vehicles (other than railway or tramway) – ($56.35 billion)
- Machinery, nuclear reactors, boilers – ($31.86 billion)
- Commodities not specified according to kind – ($19.97 billion)
- Plastics – ($13.67 billion)
The Observatory of Economic Complexity (OEC) reports the biggest imported items to the State of Georgia in the U.S. are:
- Medium-sized cars – ($7.29 billion)
- Immunological products packaging for retail sale -- ($6.91 billion)
- Communication apparatus (excluding telephones) – ($3.45 billion)
- Large-sized cars – ($2.92 billion)
- Commodities not specified according to kind – ($2.53 billion)
Additionally, when it comes to fresh produce, the Associated Press reported that tariff increases on Canadian and Mexican products could lead to higher prices for fresh fruits and vegetables. In 2022, the AP said Mexico supplied 51% of fresh fruit and 69% of fresh vegetables brought into the U.S., with Canada adding another 2% of fruit and 20% of vegetables.
With cars, electronics and even oil among the products that could see higher tariffs, the impacts on the automotive industry, technologies and possibly gasoline and fuel prices could have costs go up as a result. A 25% increase in import taxes to non-domestic oil would mean more than just a few cents on the gallon at the gas pump.
The Associated Press contributed to this report.
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