US tariffs: A blow to the world economy

THE tariffs imposed on Saturday by President Donald Trump on products from the US’s three leading trading partners are without recent precedent, sparking a trade war with powerful repercussions for all involved.

Here are some key points about how the tariffs will work and what impact they will have.

How much trade is involved?

The United States is an essential trading partner for the three targeted countries: Canada, China and Mexico. But the impact will fall disproportionately on the US’s immediate neighbours than on China, the world’s second-largest economic power.

US imports from Canada, Mexico and China represented a combined total of over US$1.2 trillion for the first 11 months of 2024 — just over 40 per cent of all US imports, according to the Commerce Department.

For Mexico and Canada, the United States is by far the largest customer – accounting for 77 per cent of Mexican goods exports and 84 per cent of Canada’s, according to the two countries’ statistical agencies.

China’s reliance on the US market is proportionately far smaller, representing just 15 per cent of 2024 exports, according to Chinese customs data.

The United States had sizable commercial deficits with all three countries in the first 11 months of 2024: more than US$270 billion with China, US$157 billion with Mexico and US$55 billion with Canada.

How will the targeted countries be affected?

Given its greater exposure to US trade, Mexico is expected to be the hardest hit.

According to Oxford Economics, the tariffs imposed on Saturday could raise the inflation rate there to 6 per cent annually, up from 4.2 per cent in December, while the nation’s currency, the peso, could see a 7 per cent weakening – with attendant risks of recession.

For Canada – and excluding the effects of newly announced counter-tariffs – the US tariffs could cause a 2.7 per cent drop in the GDP this year and 4.3 per cent drop next year, compared to the expected levels absent tariffs, according to chief EY economist Gregory Daco, adding to inflationary pressures.

For the US economy, the clearest impact should concern prices. The gamut of affected products is enormous – ranging from automobiles and avocados from Mexico, to fowl and petroleum from Canada and iPhones from China, just for starters.

Facing the additional taxes of 10 to 25 per cent on these products, businesses are bound to pass at least part of their added costs on to consumers.

The Tax Foundation, a think tank generally favourable to lower taxes, estimated on Friday that the new tariffs could trim US GDP by 0.4 per cent over the long term and add US$830 in annual costs to each American household this year.

EY predicts a 0.7 per cent rise in inflation in the first quarter before the effects begin to ease.

How are the affected countries responding?

The three countries wasted little time in responding to Trump’s tariff announcement.

Canada reacted first, announcing 25 per cent tariffs on American products eventually worth C$155 billion (US$145.7 billion). Tariffs on a first tranche of products worth US$30 billion will take effect Tuesday.

Some Canadian provinces are taking additional steps. The prime ministers of Ontario and British Columbia have asked the provincial outlets that import alcoholic beverages to stop buying supplies in Republican-governed states – or in any US state, in Ontario’s case.

As for China, its trade ministry said Beijing would take “corresponding countermeasures to resolutely safeguard our own rights and interests.”

China’s foreign ministry said that “there are no winners in a trade war or tariff war.”

Both Beijing and Washington say they have filed complaints on the dispute with the World Trade Organization (WTO).

And in a sharply worded statement, Mexican President Claudia Sheinbaum announced that retaliatory tariffs would be imposed on US products. She gave no details. AFP