World awaits Trump tariff deadline on Canada, Mexico and China

by Beiyi SEOW

With less than 24 hours before President Donald Trump's deadline to impose sweeping tariffs on the three biggest US trading partners -- Canada, Mexico and China -- the global economy is bracing for impact.

Shortly after taking office this month, Trump said he planned to introduce 25 percent tariffs on neighbors Canada and Mexico on February 1 unless they cracked down on illegal migrants crossing the US border and the flow of deadly fentanyl.

He added that he was eyeing an additional 10 percent duty on Chinese goods as soon as Saturday as well, similarly over fentanyl.

On Thursday, he reiterated his commitment to levies on all three countries. Later that day, he also re-upped threats of 100 percent tariffs on BRICS nations -- a bloc including Brazil, Russia, India, China and South Africa -- if they create a rival to the US dollar.

Fentanyl, many times more powerful than heroin, has been responsible for tens of thousands of overdose deaths a year.

Beijing previously rebuffed claims of its complicity in the deadly trade, while Canada has countered that below one percent of undocumented migrants and fentanyl entering the United States comes through its northern border.

JPMorgan analysts believe the promise of tariffs are "a bargaining chip" to accelerate the renegotiation of a trade deal between the United States, Mexico and Canada.

"However, potentially dismantling a decades-long free-trade area could be a significant shock," said a recent JPMorgan note.

One lesson from Trump's first term was that policy changes could be announced or threatened on short notice, it added.

Tariffs are paid by US businesses to the government on purchases from abroad and the economic weight can fall on importers, foreign suppliers or consumers.

- Recession risk -

Wendong Zhang, an assistant professor at Cornell University, said Canada and Mexico would suffer the most under 25 percent US tariffs and proportional retaliations from both countries.

"Canada and Mexico stand to lose 3.6 percent and two percent of real GDP respectively, while the US would suffer a 0.3 percent real GDP loss," he added.

Blanket US tariffs and Ottawa's response in kind could cause Canada to fall into a recession this year, Tony Stillo of Oxford Economics told AFP, adding that the United States also risks a shallow downturn.

Mexico could face a similar situation, Tim Hunter of Oxford Economics added.

It remains unclear if there could be exceptions, with Trump saying he expected to decide Thursday whether to include crude oil imports in tariffs on Canada and Mexico.

Canada and Mexico supplied more than 70 percent of US crude oil imports, with almost 60 percent of such US imports from Canada alone, said a Congressional Research Service report.

Stillo noted that heavy oil is "exported by Canada, refined in the US, and there aren't easy substitutes for that in the US."

US merchandise imports from both countries largely enter duty free or with very low rates on average, said the Peterson Institute for International Economics (PIIE).

A tariff hike would shock both industrial buyers and consumers, cutting across everything from machinery to fruits, a PIIE report added Thursday.

This week, Canadian officials said Ottawa would provide pandemic-level financial support to workers and businesses if US tariffs hit.

Prime Minister Justin Trudeau added Wednesday that Ottawa was working to prevent the levies and stood ready to issue a strong response.

Mexican President Claudia Sheinbaum said she was confident her country could avoid the levy.

Trump's commerce secretary nominee Howard Lutnick said Wednesday "there will be no tariff" if Canada and Mexico acted on immigration and fentanyl.

- 'Grand bargain' -

Trump still eyes fresh tariffs on Chinese goods too, saying Thursday he was mulling them.

White House spokeswoman Karoline Leavitt told reporters this week: "The president has said that he is very much still considering that for February 1st."

Beijing has vowed to defend its "national interests," and a foreign ministry spokeswoman previously warned that "there are no winners in a trade war."

On the election campaign trail, Trump raised the idea of levies of 60 percent or higher on Chinese imports.

Isaac Boltansky of financial services firm BTIG expects to see "incremental tariff increases" on Chinese goods, with consumer goods likely to face lower hikes.

"Our sense is that Trump will vacillate between carrots and sticks with China, with the ultimate goal being some sort of grand bargain before the end of his term," he said in a recent note.

© Agence France-Presse