Trump’s tariff plan: A bold move or a risky gamble?

Donald Trump is back with big promises to shake up global trade. The US president-elect has announced plans to impose heavy tariffs on imports, with rates as high as 25% for goods from Mexico and Canada, and an additional 10% for Chinese products. He claims these measures will tackle drug trafficking and illegal migration, starting on his first day in office. But critics worry these tariffs could hurt the domestic economy and strain relationships with key trading partners. 

Trouble in North America
Trump’s plan could cause problems for the US-Mexico-Canada Agreement (USMCA), a trade deal he himself negotiated in 2020. Canadian officials, including Deputy Prime Minister Chrystia Freeland, have praised cooperation between the US and Canada on border security and tackling fentanyl smuggling. However, they warn these tariffs could cost jobs and harm industries in both countries.

Mexico, the US' biggest trading partner, would also take a hit. The Mexican peso has already weakened following Trump’s announcement, showing investor concerns. If enacted, such measures could significantly impair Mexico's export-driven economy, potentially triggering sovereign credit downgrades and dampening foreign direct investment. Some experts also believe these tariffs could increase tensions around immigration, an issue Trump dubbed an “invasion” in his statements. President Claudia Sheinbaum threatened retaliatory measures on US imports, pointing out that tariffs would not address the root causes of the "migration phenomenon" or the drug crisis in the US.

US crude imports from Mexico in 2023 were on average 733,000 barrels per day, according to the US Energy Information Administration. In 2022, Mexico was the second largest exporter globally of oil to the US.

China in the Spotlight Again
Trump has set his sights on Beijing, accusing it of failing to stop fentanyl trafficking. The deadly synthetic opioid, which killed over 70,000 Americans in 2023, is reportedly manufactured in Mexico using precursors imported from China. The president-elect is threatening to slap a 10% tariff on Chinese goods, on top of existing trade barriers and, perhaps, to a 60% levy on imports mooted during the campaign trail. China has responded with cool restraint by urging cooperation and warning against the dangers of a trade war on a global scale. Experts fear these actions could severely hurt economies across Asia, where markets have already taken a hit.

Higher Prices for US Consumers
In the US, these tariffs are likely to raise prices for everyday items. During Trump’s first term, similar tariffs led to higher costs for American consumers and disrupted supply chains. Experts say the new levies could do the same, while also stifling economic growth and putting jobs at risk.

The immediate reaction in financial markets has been negative. The Canadian dollar, the Mexican peso, and other currencies such as the Euro have lost value, while stock markets in Asia have also dropped. The damage is not just economic but also ideological. Populist narratives driving protectionist policies look set to fuel nationalism and division.

Trump and his team believe tariffs are a powerful tool to achieve their goals. Scott Bessent, Trump’s pick for Treasury Secretary, has called them “useful” for protecting US interests. Yet many experts argue the damage they cause often outweighs any benefits.

What’s Next for Global Trade?
Trump’s tariff threats are a key part of his “America First” strategy, aiming to protect the US economy. However, they could hurt international trade and make relations with other countries more difficult. Whether these tariffs are implemented or used as a bargaining chip, they have already sparked new debates about the future of global trade.