The recent threats by President-elect Donald Trump to impose significant tariffs on imports from Canada and Mexico have raised eyebrows worldwide, igniting potential trade conflict between these neighboring countries. According to analysts from Citigroup, materials such as aluminum and steel are the most vulnerable, as nearly 70% of aluminum and about 24% of steel consumed in the U.S. are sourced from these two nations. If the proposed 25% tariffs get enacted, Americans could see steel prices increase by $100 to $150 per short ton. The Midwest premium for aluminum could soar significantly, potentially more than doubling.
On November 26, just days after Trump's initial announcement, Mexico's President Claudia Sheinbaum responded with strong opposition. She warned of dire economic consequences if her country were to reciprocate with tariffs of its own. Mexico relies heavily on the U.S. as it exports around 80% of its goods to America. Given the intertwined nature of their economies, Sheinbaum suggested any escalation could lead to widespread damage for both nations.
Sheinbaum argued), “The best path is dialogue,” instead of tariffs which would increase costs and complicate existing trade relationships. She pointed out how raising tariffs would not only impact trade but also fail to address pressing issues like illegal migration and illicit drug consumption—concerns Trump had previously linked to his tariff proposal.
Reflecting on the potential fallout, analysts warn of possible stockpiling behavior among steel buyers similar to the events of Trump’s previous term, where anticipation of tariffs led consumers to increase purchases drastically. A similar trend could emerge this time around. This behavior could manifest caution among equity investors who may be hesitant to radically shift pricing assumptions as the market navigates these turbulent waters.
Meanwhile, the Canadian government’s response has been markedly different. Instead of threatening retaliation, officials highlighted their close ties to the United States and expressed willingness to navigate these complicated talks diplomatically.
According to Statistics Canada, metals and minerals constitute about half of Quebec's total exports, with the U.S. being the biggest export market. For Canada, this situation is about more than just tariffs; it’s about maintaining valuable trade partnerships built over decades.
Trade agreements under the United States-Mexico-Canada Agreement (USMCA) have been cultivated through careful maintenance of alliances since its inception, and any misstep could unravel this framework. Analysts suggest Trump’s strategy might be aimed at pressuring both Canada and Mexico to negotiate new terms—terms more favorable to the U.S., but this risks fragmenting cooperation and leading to more unilateral agreements.
Sheinbaum's government has already implemented measures to counter issues like fentanyl smuggling, asserting responsibility lies with the demand within the United States rather than solely with border exchanges. “It is fundamentally a public health and consumption issue within your society,” she stated, emphasizing the need for joint efforts to tackle drug trade more effectively.
The pressures from both the U.S. and Mexico create friction points where history of tariffs has led to creative solutions or protracted conflict, but the stark divergence of response has not gone unnoticed and sets the stage for potentially new dynamics.
Within U.S. circles, some experts have warned about the risks associated with testing alliances through heavy tariffs. U.S. exports to Mexico accounted for nearly 16% of total exports in 2022, encompassing sectors like semiconductor manufacturing, which could hurt American companies if tariffs are reciprocated. The connection between trade flows suggests unintended consequences for U.S. interests, potentially resulting from retaliatory tariffs.
Recent communications from Sheinbaum highlight Mexico’s achievements; she noted illegal crossings at the border have dramatically decreased. Her administration's focus on internal policies to stem migration has reportedly reduced migrant caravans arriving at the border, challenging narratives supporting tariff measures. Importantly, Sheinbaum has iterated on America’s need to address the root causes of migration through supportive measures rather than restrictive ones.
The future remains uncertain as both countries navigate Trump’s aggressive economic proposals, paired with their historical trade relationships. The delicate balance of diplomacy and competition could define not just the years of his term but potentially the long-term dynamics between North American countries.
Despite the divisive intentions behind Trump's tariffs, the hope for resolution through conversation remains, exemplifying the enduring importance of communication and collaboration among neighbors facing shared challenges. Countries across the globe will be watching closely, gauging whether trade relations can endure increasing tensions, lest they lead to unforeseen economic repercussions.
