CNN
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President Donald Trump said Monday evening during a signing ceremony in the Oval Office that his administration would impose 25 percent tariffs on Mexico and Canada on February 1, an extraordinary shift in North American trade policy that could raise prices for American consumers.
Mexico and Canada are two of the United States’ three largest trading partners. Last year, the United States imported $475 billion worth of goods from Mexico and $418 billion from Canada, collectively accounting for 30% of the value of all goods exported by the United States in the year. last, according to federal trade data.
Meanwhile, the United States exported $354 billion worth of goods to Canada last year and $322 billion to Mexico, accounting for a third of the value of all goods exported by states -United last year. The tariffs that Trump intends to impose on both countries will likely raise the possibility that both countries will impose retaliatory tariffs on U.S. products, which could hurt domestic businesses.
The tariffs, if enacted, “would create a self-inflicted wound to America’s own economy,” said Justice Glock, research director and senior fellow at the Manhattan Institute, a conservative-leaning think tank.
Trump further laid out his broader trade policies for his second term in an executive decision Monday. But this action – described by sources as a “placeholder” – does not usher in the new global tariffs Trump promised on day one.
As a candidate, Trump proposed sweeping, across-the-board tariffs: up to 20 percent on imports from all countries, with a 25 percent tax on goods from Mexico and Canada, plus a punitive levy of 60% on goods from China. He also pledged to use tariffs as a negotiating tool with other countries, notably Denmark, thereby pressuring the European nation to cede control of Greenland to the United States.
Asked Monday during an Oval Office signing ceremony about tariffs on China, Trump noted that the significant tariffs he imposed during his first administration were still in place after former President Joe Biden largely left them in place. And on universal tariffs, Trump said: “We can do it, but we’re not ready for it yet. »
The executive action signed Monday ordered the secretaries of Commerce and Treasury and the U.S. Trade Representative to investigate the causes of America’s trade deficits with foreign countries, determine how to build a “foreign revenue service” to collect customs duties, and identify unfair trade practices. and review existing trade agreements for potential improvements.
It also asks government agencies to analyze how the United States-Mexico-Canada Trade Agreement (USMCA) signed by Trump during his first term affects American workers and businesses – and whether it America must stay in the free trade agreement. Trump’s action requires agencies to evaluate whether tougher U.S. trade policy could succeed in limiting the flow of fentanyl and the flow of undocumented migrants into the United States.
“Americans benefit from and deserve an ‘America First’ trade policy,” Trump’s executive action states. “Therefore, I am establishing a strong, reinvigorated trade policy that promotes investment and productivity, enhances our country’s industrial and technological advantages, defends our economic and national security, and, above all, benefits workers, manufacturers , farmers, ranchers, American entrepreneurs, and businesses.
Potentially rolling back parts of the USMCA carries its own set of risks, Glock told CNN. “Other countries will be more reluctant to negotiate such agreements in the future if they know that these agreements cannot guarantee consistent trade relations. »
Clark Packard, a researcher at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, said the 25% tariffs “would be a very serious mistake” and would also “violate” the terms of the USMCA.
The move comes as Trump’s economic team meets regularly to chart a path forward to implementing the high and sweeping tariffs on allies and adversaries that the president promised on the campaign trail.
Although administration officials continue to debate how to deliver on his promises, Trump made clear in his inaugural address that he still plans to make significant changes to tariff policy — in one form or another.
“I will immediately begin overhauling our trade system to protect American workers and families,” Trump said in his speech Monday in the US Capitol rotunda. “Instead of taxing our citizens to enrich other countries, we will impose tariffs and taxes on foreign countries to enrich our citizens. »
Trump also said in his speech that he would create a new government office called the Foreign Revenue Service, which would be responsible for collecting customs revenue.
“Massive amounts of money from foreign sources will flow into our Treasury,” Trump said.
But how to get there remains an active question that divides Trump’s economic team. Among some alternative ideas proposed: smaller tariffs whose amount increases over time, or tariffs which do not come into effect for several months, giving the administration time to bring the counterparties to the negotiating table.
Also under discussion: what legal basis to use to support the tariffs, particularly with countries and companies affected by them likely to sue. Advisers are considering using emergency powers, which would give the president broad authority to regulate imports.
Market-minded officials like Scott Bessent, Trump’s pick for Treasury secretary, and Kevin Hassett, his pick to lead the National Economic Council, have advocated a softer approach. Tariff advocates such as Peter Navarro, a White House trade adviser, and Howard Lutnick, Trump’s pick to lead the Commerce Department, have argued that it must go all the way to send the message Trump wants.
Trump, for his part, called on his allies on Capitol Hill to step up their support for the tariffs. But the specific policy has not yet been decided.
But those tariffs could increase costs for Americans, fatigued by years of high inflation. Tariffs are paid by U.S. companies that import foreign products, but these costs are usually passed on to consumers in the form of higher prices.
Despite Trump’s assurances that foreign countries would pay the tariffs — not U.S. consumers, a new study from the Peterson Institute for International Economics suggests otherwise: Trump’s aggressive tariff campaign will force U.S. consumers to pay more for virtually everything – from foreign-made sneakers to toys to food.
Trump’s tariffs would raise prices, particularly on imported electrical appliances, toys and sporting goods, Peterson found. And businesses will be subject to new taxes to import transportation equipment, chemicals and other items.
Supporters of Trump’s tariff plan say import taxes will be used strategically to promote U.S. interests around the world, saving U.S. consumers in the long run. During his first term, Trump repeatedly threatened to impose tariffs, only to backtrack on his threats when foreign countries came to the negotiating table.
But most mainstream economists fear that Trump’s tariffs could reignite America’s inflationary crisis, spooking the stock market and triggering a full-blown trade war. U.S. tariffs often provoke retaliation from other countries. During Trump’s first term, everything from American automobiles to soybeans to whiskey were targeted with retaliatory tariffs.
The ideological debate taking place within Trump’s economic team is reminiscent of his first term, when Steven Mnuchin and Gary Cohn – Wall Street veterans serving atop the Treasury and the National Economic Council, respectively – led a vigorous campaign to stop or dilute Trump’s proposed tariffs. , fearing retaliation and recession.
At the time, discussions continued for more than a year before the administration announced plans to impose tariffs amid a national security investigation.
Despite widespread reports that Trump may reduce his tariff policy this term, he has always maintained that he will keep his campaign promises. Ultimately, both things can be true: the devil is in the details.
This headline and story have been updated with additional developments.
