Donald Trump’s tariff threats are causing widespread ripples and potentially creating follow-up consequences. As the first target of Trump’s tariff bomb, Mexico has immediately hinted at retaliatory measures. If countries like China and Canada respond with their own tariffs and currency devaluation, fears are emerging that an even more destructive trade war could ensue compared to Trump’s first term. With tariffs increasing production costs, companies are likely to pass these on to consumers, making inflation inevitable, according to general analyses.
Mexican President Claudia Sheinbaum, during a press conference on the 26th, directly addressed a letter to President-elect Trump. She emphasized Mexico’s willingness to cooperate with the U.S. in combating the fentanyl drug wave and noted that tariffs or threats are not solutions to immigration or drug issues. Sheinbaum also indicated possible retaliatory tariffs, highlighting that Mexico is the number one exporter of goods to the U.S.
The New York Times reported that many foreign governments are already compiling lists of U.S. products to target in retaliation. Additionally, countries might devalue their currencies to lower export prices and mitigate the impact of tariffs. Under the USMCA agreement, most goods between the U.S., Canada, and Mexico are tariff-free, but if the U.S. imposes a 25% tariff on Mexican products, retaliation is anticipated. Mexico has previously enacted such measures when faced with U.S. tariffs on its steel.
China, which Trump suggested might face a new 10% tariff, could strategically devalue the yuan to counter tariff effects, as it did during Trump’s first term.
While Trump aims to protect American manufacturing through tariffs, some experts warn that the U.S. automobile industry may take an immediate hit. Companies like General Motors and Ford have production facilities in Mexico and Canada; about 16% of vehicles sold in the U.S. are made in Mexico, and 7% in Canada. If a 25% tariff is imposed, car prices will surge, reducing competitiveness and impacting American manufacturers. Following Trump’s tariff announcements, GM’s stock dropped 9%, and Stellantis fell 5.7%.
Canada and Mexico are also significant exporters of steel, aluminum, fruits, and vegetables to the U.S. In 2022, the U.S. imported $44.1 billion worth of produce from Mexico. The imposition of a 25% tariff would lead to increased prices for almost all U.S. products, from cars to food, as major retailers like Walmart and Best Buy have indicated.
AP reported that if Trump follows through with his tariff threats, resulting price hikes could conflict with his campaign promise to escape inflation. Some speculate that Trump’s tariff threats might be strategic leverage for negotiations with foreign countries. Bernstein’s analyst Daniel Loeska suggested that the proposed tariffs may not be actualized due to the severe impact they could have on the U.S. auto industry.