Bottles of tequila from Mexico at a Safeway store Monday in San Anselmo, Calif. (Justin Sullivan/Getty Images)
President Donald Trump said Monday that tariffs on goods from Mexico and Canada would go into effect Tuesday, ending a month-long delay that saw both U.S. neighbors scramble unsuccessfully to head off the punishing trade action and sending stock prices into a swift decline.
On Wall Street, the Dow Jones Industrial Average closed down around 1.5 percent. The broader S&P 500 index fell nearly 2 percent. Both market measures are now in the red since Trump’s election win.
Imposing tariffs on everything Americans buy from Mexico and Canada is an extraordinary political gamble by a president who was returned to power by voters angered over years of high inflation. The new import taxes are likely to raise the market prices of Mexican tequila, beer and avocados, along with Canadian crude oil and lumber, testing consumer patience with Trump’s approach.
Tariffs on China will also increase by an additional 10 percentage points for the second time in two months, bringing the total tax on some Chinese products to 45 percent.
Trump’s announcement stemmed from his complaints about cross-border flows of undocumented migrants and drugs, notably fentanyl. But at the same time, the president has a broader goal: to encourage manufacturers to return to the United States after liberalized trade and outsourcing contributed to the loss of 4.5 million manufacturing jobs since the mid-1990s. Most economists insist that automation was responsible for most of that decline, and they credit freer trade with delivering years of low inflation and wider product choice for American consumers.
But Trump, a globalization critic since the 1980s, when Japan was the rising global economic star, has no patience for such views. In slapping a 25 percent tariff, or tax, on products from Canada and Mexico, he upended the North American trade deal that he negotiated during his first term. Under its provisions, most products pass between the United States, Canada and Mexico without incurring a duty.
“Tomorrow, tariffs — 25 percent on Canada and 25 percent on Mexico. And that’ll start,” Trump told reporters. “So they’re going to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs.”
Trump’s midafternoon announcement in the Roosevelt Room drew a rapid response from business groups, unions and the affected trading partners. Statements of opposition came from the National Foreign Trade Council, Distilled Spirits Council and the International Association of Machinists.
Even some supporters of the president’s overhaul of trade policy were critical.
“Tariffs are great when they stop unfair trade that could hurt U.S. producers and workers, but we have balanced trade with Canada, and tariffs don’t affect smuggled stuff, like fentanyl,” said Lori Wallach, director of the Rethink Trade Program.
Trump has lofty goals for his high-tariff policy, including the return to the United States of Midwestern auto and auto parts plants and North Carolina furniture producers.
On Monday, the president hailed an announcement by Taiwan Semiconductor Manufacturing Co. of a planned $100 billion investment in its Arizona computer chip plant, which he said tariffs had encouraged.
Still, many analysts are skeptical of their long-term prospects.
“This action effectively destroys the United States-Mexico-Canada Agreement (USMCA), disrupts the integrated North American economy we have spent decades building, and forces American manufacturers to scramble to restructure their supply chains. Meanwhile, the economy will be disrupted, consumers will pay higher prices, inflation will resume, and workers and farmers will lose their jobs, due to the inevitable retaliation,” said William Reinsch, a trade specialist at the Center for Strategic and International Studies.
Indeed, both Canada and Mexico have vowed to hit back.
The Canadian government plans to retaliate with levies on as much as $107 billion worth of U.S. goods, including oranges from Florida, motorcycles from Pennsylvania and home appliances from Ohio. The goal is to maximize pain in electoral swing states or those home to Trump supporters.
Several Canadian provinces have said they will implement their own retaliatory measures, including pulling U.S. alcohol from shelves and limiting procurement opportunities for U.S. firms. Ontario Premier Doug Ford has promised to cancel a nearly $70 million contract with Elon Musk’s Starlink and threatened to cut energy exports.
“I can’t for the life of me figure out why this guy’s attacking his closest neighbors, allies and friend,” Ford told reporters on Monday. “ … If they want to try to annihilate Ontario, I will do everything, including cut off their energy with a smile on my face.”
China already has imposed retaliatory tariffs on U.S. exports of farm machinery, coal and liquefied natural gas in response to the 10 percent tariff Trump put on Chinese goods early last month. His action Monday, citing China’s continued shipments of fentanyl precursors, added an additional 10-percent levy.
In Mexico, Ana Lilia Moreno, director of the economic competitiveness project at Mexico Evalua, a think tank, said Trump’s tariffs would push Mexico into recession. She cited a study by the Brookings Institution’s global trade experts that Mexico could lose between 1.4 and 2.2 million jobs because of the penalties. Mexico could respond with its own tariffs, in a full-fledged trade war.
“This basically will translate into a crisis,” she said. “It will have a chain effect on other markets not connected to foreign trade,” such as the real estate market.
The president’s comments followed earlier suggestions by Commerce Secretary Howard Lutnick that he might opt to impose less onerous import taxes.
Trump announced 25 percent tariffs on goods from Canada and Mexico — and a related 10 percent tax on Chinese products — on Feb. 1, citing an influx of unauthorized migrants from the U.S. neighbors and blaming all three countries for the nation’s fentanyl epidemic.
During the reprieve, Mexico and Canada have taken steps to strengthen border enforcement and surveillance.
“He knows they’ve done a good job on the border. They haven’t done enough on fentanyl. Let’s see how the president weighs that today,” Lutnick told CNN on Monday. “He’s going to decide this afternoon and tomorrow we’re going to put out those tariffs.”
The comments came amid signs that Washington’s perpetual waiting game over Trump’s tariff plans is beginning to sap the economy’s forward momentum. A closely watched gauge of manufacturing activity for February showed a decline in activity, as uncertainty froze business decision-making.
Factories experienced “the first operational shock of the new administration’s tariff policy,” said Timothy Fiore, chair of the Institute for Supply Management’s manufacturing survey committee.
The ISM Manufacturing Purchasing Managers Index for February was 50.3, down from 50.9 the month before, and below Wall Street’s expectations. Input prices rose at their fastest pace since mid-2022, when consumer price inflation was at a 40-year high.
“Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts,” Fiore said. “Although tariffs do not go into force until mid-March, spot commodity prices have already risen about 20 percent.”
As the president deliberated, analysts and executives tried to read the administration’s tea leaves.
Many importers have refrained from rearranging their supply chains while they wait for a clearer signal from the White House.
“For our customers, they’re not making a lot of changes right now because there’s a lot of uncertainty about what’s next and what may happen,” said Brian Bourke, global chief commercial officer for SEKO Logistics, which handles cross-border trade for importers.
The president, in a post Sunday on his social media site Truth Social, crowed about the improved border situation. “ILLEGAL BORDER CROSSINGS LAST MONTH WERE THE LOWEST EVER RECORDED. THANK YOU!!!” he wrote.
Trump’s post, coupled with Lutnick’s comments, appeared to set the stage for the White House to declare at least a partial victory and dial down any planned trade move. Last week, the president said the tariffs would go ahead “as scheduled” on Tuesday. But given his history of threatening trade moves before pulling back, that did not end the doubts.
Since taking office six weeks ago, Trump has threatened or imposed tariffs on the top three U.S. trading partners; commodities such as steel, aluminum and copper; and products like pharmaceuticals, automobiles and semiconductors.
The broad sweep of the president’s plan to increase import taxes goes far beyond what he did in his first term, when new tariffs were mostly levied on goods from China.
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