It took almost three weeks for Donald Trump to provide an unmistakable signal that he is serious about fulfilling his tariff promises, setting up a likely flurry of diplomatic and legal maneuverings in the months to come.
The president-elect on Monday night announced plans for both a 25% blanket tariff on Mexico and Canada and new 10% duties on China “above any additional tariffs.”
The stated reason for these new proposed duties are drugs and illegal immigration, with the president-elect surprising many observers by targeting all three of the top US trading partners even before he takes the oath of office.
The move was met by immediate resistance, with a spokesperson for the Chinese Embassy in the U.S. posting that “no one will win a trade war.”
President-elect Donald Trump looks on during a UFC event at Madison Square Garden on November 16 in New York City. (Chris Unger/Zuffa LLC) ·Chris Unger via Getty Images
But as even Trump himself signaled, there are a lot of steps to come between last night’s dinnertime posts and these duties actually being in place.
“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem,” Trump noted of his North American plans.
Here’s what could be coming in the weeks ahead:
The first order of business is likely to be an intense bout of back and forth between these three nations and Trump’s transition team.
In fact, Reuters reported Tuesday that Trump quickly held a conversation with Canadian Prime Minister Justin Trudeau after issuing the threat in an apparent opening of talks.
A representative for the Trump transition didn’t immediately confirm that the call had taken place or whether the president-elect has spoken to other leaders in recent hours.
But the talks are sure to be in the offing soon either way, and that’s a moment global nations appear to have been preparing for since Trump’s victory.
Adam Posen, the president of the Peterson Institute for International Economics, noted in a recent digital event before the announcement that many governments “are making plans to sort of preemptively make offers of various kinds to the Trump administration” as a way to lessen tariffs threats.
Donald Trump talks with Canada’s Prime Minister Justin Trudeau in 2019 during his first term in office during a NATO plenary session. (NICHOLAS KAMM/AFP via Getty Images) ·NICHOLAS KAMM via Getty Images
Posen listed Canada in his talk as one of the nations “likely lining up offers” and suggested things like increased energy purchases or moving production inside the US could be on the table. It was a strategy that some nations also employed, to some success, the last time Trump was in office.
The question is whether any smaller concessions satisfy Trump and his team and allow them to declare victory and back away from the larger threat.
The incoming president’s initial demand is for all drugs and illegal immigration to cease from the three countries. That is likely impossible.
And the stakes are high with China, Mexico, and Canada representing America largest trading partners by far.
The top three exporters to the U.S. in 2022 were China ($536.3 billion), Mexico ($454.8 billion), Canada ($436.6 billion), according to the US Trade Representative.
In addition, the top three purchasers of American goods are those same three countries, just in a different order. Canada alone is the recipient of 17.3% of total U.S. goods exports.
Joseph Lavorgna, a former Trump economic aide who remains allied with the president-elect as a senior fellow at the America First Policy Institute, added in a Yahoo Finance Live appearance Tuesday morning that “there’s certainly a transactional component” to Trump’s announcement.
He also suggested some countries, specifically China, may need to offer more concessions to avoid the duties, adding that tariffs are “a key tool in getting the next administration’s agenda done.”
Chinese President Xi Jinping is seen during a visit to Brazil on November 20. (Mateus Bonomi/Anadolu via Getty Images) ·Anadolu via Getty Images
Perhaps the next question — if Trump doesn’t extract concessions to his liking — will be whether the US political and legal system would allow him to proceed.
What Trump promised in this week’s post is to move to implement that tariffs on day one but stopped short of promising they would be in effect immediately
On inauguration day “I will sign all necessary documents,” he said.
His likely authority for such a move is a 1977 law called the International Emergency Economic Powers Act, which Trump aides have long discussed as a means to move quickly.
The law could be notably well suited to actions against specific countries. William Reinsch, a trade expert at the Center for Strategic and International Studies, said in a recent interview that the law gives extensive powers and “it works better when there’s a targeted offender.”
But there’s a catch.
“No matter what he does, he’ll be sued,” Reinsch added, suggesting that companies would immediately try to block the move through the courts.
The legal challenges around duties on Mexico and Canada could be even more complex because of the United States-Mexico-Canada Agreement (USMCA) that Trump himself signed into law in 2020.
Donald Trump signs the United States-Mexico-Canada Trade Agreement (USMCA) at the White House in 2020 in Washington. (Drew Angerer/Getty Images) ·Drew Angerer via Getty Images
New tariffs would appear to violate that pact which aimed to continue the largely free flow of goods between the three nations. A move could give companies greater grounds to sue.
But new tariffs aimed at specific nations (as opposed to blanket duties) could have significant legal protections. Another analysis from Alan Wolff at the Peterson Institute for International Economics explaining the President has considerable powers and “the courts could go along with additional retaliation but not tariffs on everything from everywhere.”
Yet if any duties come into effect, the impact would surely be dramatic for a range of industries from automakers, farmers, to manufacturers.
The effect on energy could also be deeply felt with new tariffs on Canada likely to impact energy imports from the north unless exceptions are made.
“A 25% tariff on Canadian oil would have huge impacts,” noted energy analyst Patrick De Haan Monday night.
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’s Rachelle Akuffo, Rick Newman, and Ben Werschkul bring you a unique look at how U.S. policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
