November 26, 2024
Retaliatory tariffs. A phrase you should probably understand.
By now you already know that President-elect Trump last night announced by social media – that on “day one” in office he is going to impose a 25% tariff on imports from Canada and Mexico and an additional 10% tariff on imports from China. Trump says he’s doing this to stop illegal migrants and drugs from coming into the United States. Trump says he’s going to do this through executive order.
But the new president of Mexico had something to say about that and so did Canada’s prime minister…which I will share in a second.
But first a few things – I did a whole big deep dive video about how tariffs work. If you haven’t seen it I highly encourage you to go watch it now. But the short short version is – the facts prove four things. One — in the end – tariffs are generally not paid for by the other countries – they’re a tax that you and me the American consumer ends up paying for. Two — in the last 70 years – tariffs have never accounted for more than 2% of the total federal revenue – so history shows they don’t bring in much money. Three — it’s highly unlikely to avoid tariffs, American companies en mass would fully bring manufacturing back to the United States to produce all the goods here. It’s just not cost effective. And four – it is highly unlikely that congress will ever approve a complete elimination of federal income tax to offset the increase in prices you are going to pay from these tariffs. Again – I have all the facts in that video please go watch it.
You also need to understand that Mexico, Canada and China are the United States’ closest and most important trading partners. We’re talking like more than 2 trillion dollars in goods and services traded between the countries every single year. The US imports cars, car parts, electrical equipment and fruit from Mexico and imports oil, gasoline and machinery from Canada plus – it’s no secret how much we import from China. These trade partnerships are a big deal. It’s unclear how trump is going to get around a deal that he made with Mexico and China during his first term. Trump negotiated the United States Mexico Canada Agreement – you may know it as the USMCA. It allows for free trade between the US, Canada and Mexico and says tariffs cannot be slapped on many imports from those countries. China – is a totally different story.
Now — let’s talk about the new president of Mexico’s response to Trump’s tariff announcement. President Sheinbaum basically said “bet.” Today she said “neither threats nor tariffs will solve the issue of migration or drug consumption. …one tariff would be followed by another in response, and so on until we put at risk common businesses.” And that my friends – would be a retaliatory tariff. She’s saying if trump tries to tariff Mexican goods – going against the USMCA – Mexico is going to tariff to all the US automakers that have plants on both sides of the border among other things. She went on to say she is absolutely willing to work with Trump to tackle all the issues he’s concerned about but imposing tariffs isn’t the way to do it. By the way she also says she has a beef with the United States and the weapons that are flowing into her country from this one. Now – this strong response from president Sheinbaum is much different than what trump is used to. When he was in office the first time Mexico had a different president who was much more chummy with trump, she is new and appears to be very different.
But someone trump is familiar with is Canada’s prime minister Justin Trudeau. He said today that after trump posted that announcement last night he immediately was on the phone with Trump talking about it. Today Trudeau said “we obviously talked about laying out the facts, talking about how the intense and effective connections between our two countries flow back and forth.”
Now – we know trump loves tariffs. But whether he’s serious about these or if he is using it as a negotiating tactic is unclear. By announcing the tariff plan almost two months in advance of trump taking office, all three governments will have time to respond — and potentially negotiate an alternative.
