The United States of America, Canada, and Mexico have had strictly business relationships for most of our neighboring years. We are each other’s most critical economic partnerships. However, what will change with Prime Minister Justin Trudeau stepping down, President Donald Trump occupying the Oval Office, and Mexico’s economic growth slowing down?
One huge part of Trump’s agenda is to impose severe tariffs on goods coming in from Canada and Mexico to stop the flow of drugs and undocumented migrants. According to Trudeau, Trump told reporters that there is a massive amount of fentanyl coming in from both our neighbors.
That claim isn’t entirely unfounded. Last year, the U.S. Border Patrol seized about 21,000 pounds of fentanyl at the southern border and 46 pounds at the northern border. That doesn’t sound like a lot, but the rate of drug trafficking in Canada is rapidly increasing, according to The Wall Street Journal.
Before I keep yapping, we need to understand how tariffs work to better understand how they will impact our relationship with top traders. Walter White will have to take a step back for a bit.
Civics 101
Tariffs are taxes imposed by one country on goods imported from another country. The Tax Foundation cites them as “trade barriers.” If you remember the Stamp Act of 1765 and the Townshend Act of 1767, Britain (directly and indirectly) placed tariffs on items such as paper goods and tea. By imposing taxes on the imports or goods coming into the country, the prices of the goods increased for the consumers in the colonies. Obviously, the colonists did not appreciate that (among many other things), hence the saying “no taxation without representation” and a certain revolution we all know and love. Ringing any liberty bells?
According to Ernesto Revilla of Americas Quarterly, the last time tariffs were this extreme was in 1930 when the Smoot-Hawley Tariff Act was passed. This is believed to worsen the Great Depression by decreasing international trade when countries introduced retaliatory tariffs of their own. This is totally not foreshadowing or anything.
Back to Trump’s Tariffs
President Trump imposed the 25% tariffs on Feb. 1, as reported by the New York Times. However, it is illegal for the U.S. to impose tariffs on exports. This means we can’t implement taxes on the goods we export to other countries. Canada and Mexico will not pay extra for our goods unless they impose their own tariffs. The intended goal, instead, is to stop U.S. citizens (the consumers) from buying goods from Canada and Mexico (the producers). This will increase the amount of money lost as demand decreases. As mentioned, the Trump Administration hopes this will stop drugs from entering the country.
Imposing tariffs on a trading partner as big as Canada is ambitious, for lack of a better word. Trudeau will be stepping down once a new party leader is elected. Pierre Poilievre, Conservative Party leader and predicted Prime Minister-elect, supports a potential dollar-for-dollar tariff plan. Even Trudeau admitted to potential “retaliatory tariffs” if our tariffs are enacted. Due to this, it is uncertain how isolating or lengthy these trade wars will be and how much it will impact the already-high cost of goods.
Even though the impact on Americans will be more immediate, Trump’s tariffs will still burden our trading partners. According to the Canadian Chamber of Commerce (as cited by Sean Mott of the Canadian Television Network), U.S. exports have employed 2.3 million Canadians. Canada taxing us back reduces the amount of U.S. goods entering their borders. The reduced revenue and flow of goods might lead to fewer jobs necessary. The reasons for Canada’s potential tariffs are clear. An eye for an eye, as they say.
Mexico would be hit harder by the tariffs. Up to 80% of Mexico’s exports get sent to the U.S., and would “initiate a process of deindustrialization of Mexico,” said Marcus Noland, executive vice president and director of studies at the Peterson Institute of International Economics, in an interview with the New York Times. Agriculture is another economic area that would be hit pretty hard. The same article writes that Mexico supplies “63% of U.S. vegetable imports and 47% of its fruit and nut imports.” Avocados were fun while they lasted.
However, we do not have to worry about tariff threats just yet. On Feb. 3, Trump pressed pause on the continental trade war, giving Canada and Mexico a 30-day period to strengthen border security and crack down on trafficking. Canada and the U.S. have agreed to a Joint Strike Force to “combat organized crime, fentanyl and money laundering.” According to the Associated Press, negotiations will occur with Mexico over immigration and drug smuggling.
After all my research, it seems like the tariffs will pressure Canada and Mexico to handle Trump’s concerns instead of physically stopping drugs and migrants from entering the country. The Tax Foundation breaks down Trump’s plan for those looking for more information. The Center of American Progress, American University, and Brookings also provide detailed insights from economic experts on how this trade war will impact Americans.
According to every news source I’ve cited, the potential barricades will further stagnate the trade that our economy historically thrives on, harm workers and the country in the long term, and might only benefit the top 1%.
It does not look like eggs will be cheap any time soon.
Sigh.