Effects of Trump's tariff war

On Feb. 1, President Donald Trump announced his plan to impose a 25 percent tariff on all goods coming from Mexico and Canada (except Canadian oil and gas which would be slapped a tariff rate of 10 percent).

- ANDREW J. MASIGAN

He also announced a 10 percent tariff on Chinese imports on top of those already levied during his first term. This will effectively accelerate the average tariffs on Chinese goods to 20 percent.

Trump's tariff spree is motivated by four objectives. First, to reduce US trade deficits with its trading partners which, as of end-2024, amounted to $918.4 billion. Second, to raise revenues through tariff collection. Third, to compel manufacturers affected by tariffs to move their production to the US. Fourth, to compel Canada, Mexico and China to bend to his will.

How will the tariffs affect China, Canada and Mexico?

Much to Trump's chagrin, the impact on China will be minimal. US-China trade has diminished significantly since Trump imposed tariffs during his first term. China has successfully diversified its export markets since 2017, effectively weaning its dependence from the US. The Economist magazine forecasts the impact on the Chinese economy to be minimal, to the tune of 0.3 percent of GDP over the next few years.

Canada and Mexico will be impacted in a more substantive way. Since 1993, tariffs between the three economies have been virtually nil, thanks to NAFTA and later, the USCMA. This opened the way for manufacturers to create supply chains spanning the three countries whereby components cross borders several times before the finished product is rolled out. This is especially true for autos, aerospace products and heavy equipment. Trump's tariffs will upend these supply chains, making the finished product more expensive. The added cost will be passed on to consumers.