Tariffs will Affect the U.S.!

The U.S. President has this weird idea that tariffs imposed by U.S. are paid by the governments of those countries impacted. Any sane economist can explain this! Why can’t he consult someone before making silly statements? The problem is as a “stable” genius, he doesn’t listen to anyone – not even to Melania! 

Nearly half of all U.S. imports — more than $1.3 trillion — come from Canada, China, and Mexico. However, analysis by Bloomberg Economics shows that the new tariffs could reduce overall U.S. imports by 15 percent. 

The Tax Foundation (in Washington D.C.) estimates that the tariffs will generate around $100 billion per year in extra federal tax revenue. But significant costs on the broader economy may include: disrupting supply chains; raising costs for businesses; eliminating hundreds of thousands of jobs; and ultimately driving up consumer prices. 

Certain sectors of the U.S. economy will be hit particularly hard, including the automotive, energy, and food sectors. Gas prices may surge 50 cents per gallon in the Midwest, as Canada and Mexico supply more than 70 percent of crude oil imports to U.S. refineries. Also at risk are cars and other vehicles, as the United States imports nearly half its auto parts from its northern and southern neighbours. 

A 25 percent tariff on Canada and Mexico will raise production costs for U.S. automakers, adding up to $3,000 to the price of some of the roughly sixteen million cars sold in the United States each year. 

Grocery costs could rise, too, as Mexico is the United States’ biggest source of fresh produce, supplying more than 60 percent of U.S. vegetable imports and nearly half of all fruit and nut imports. 

Still, the United States is less reliant on trade than many other industrialized economies, including Germany, Japan, and the United Kingdom. Imports and exports make up just a quarter of U.S. gross domestic product (GDP), and the United States sources what it does import from a fairly broad set of nations. 

Tariffs will hit Canada and Mexico much harder, as trade makes up about 70 percent of both economies’ GDP.

The two countries are particularly dependent on trade with the United States. More than 80 percent of Mexico’s exports — including cars, machinery, fruits, vegetables, and medical equipment — head north, accounting for 15 percent of total U.S. imports. 

This dependence is especially pronounced on Mexico’s northern border. There, industrial states Chihuahua, Coahuila, Nuevo León, and Baja California account for nearly half of Mexico’s exports to the United States, sending more than $200 billion worth of computers, electronics, transportation equipment, and other products each year. 

A unilateral 25 percent tariff on these goods could slash Mexico’s GDP by some 16 percent according to Bloomberg Economics. Mexico’s auto industry will bear the brunt. Mexico sends nearly 80 percent of the cars it produces to the United States alone, amounting to some 2.5 million vehicles each year. 

Duties will also threaten Mexico’s energy sector; the United States is the recipient of roughly 60 percent of Mexico’s petroleum exports, most of which is crude oil bound for U.S. refineries. At the same time, Mexico is the top destination for U.S. refined oil exports, which meet over 70 percent of domestic demand. U.S. tariffs will likely make fuel more expensive, raising prices at the pump and straining Mexico’s broader economy. 

Canada faces a similar challenge. The United States buys more than 70 percent of Canada’s exports, with these goods making up 14 percent of total U.S. imports. Under the new tariffs, Canada’s energy sector will take the biggest hit, as exporters send 80 percent of their oil south. 

These asymmetries in the cost of tariffs at home give the U.S. significant leverage over its North American partners in negotiations.

China is comparatively less dependent on the United States and less reliant on trade overall. Over the past two decades, the country has steadily reduced the importance of trade to its economy. Beijing has ramped up domestic production. Today, imports and exports account for only about 37 percent of China’s GDP, compared to more than 60 percent in the early 2000s. 

In recent years, U.S.-China trade has declined, particularly in sectors hit by previous tariffs and export controls, such as auto parts, data servers, furniture, and semiconductors. 

China has instead ramped up trade with other partners including the European Union, Mexico, and Vietnam. The country’s share of global trade has climbed roughly 4 percent since 2016, when President Trump first took office. Combined, these factors will lessen the shock of an additional 10 percent tariff on Chinese exports to the United States. 

Each country’s currency could weaken further, lessening the bite of tariffs on imports and raising the effective price of U.S. exports to other nations. 

A weakened yuan has already softened the blow for Chinese producers, helping their exports remain competitive around the world. The roughly 30 percent depreciation of Mexico’s peso since April and the Canadian dollar’s 8 percent drop since September also lessens the potential impact. Markets could potentially drive the peso, as well as the Canadian dollar, further down not that tariffs are in place. 

Additionally, Canada, China, or Mexico could respond in kind, imposing tit-for-tat tariffs on the United States. Mexican President Claudia Sheinbaum has already suggested that Mexico could retaliate with tariffs of its own. 

and the United States-Mexico-Canada Agreement (USMCA), which underpins North American free trade, would likely allow it. 

This wouldn’t be the first time countries have reciprocated. In 2018, Mexico and Canada placed retaliatory tariffs on a combined more than $15 billion worth of U.S. goods — including steel, pork, yogurt, and tablecloths — after Trump imposed tariffs on their steel and aluminum. Likewise, the United States lost $20 billion in annual farm exports when China hit back against a slew of U.S. tariffs from 2018 to 2019.

 

If either Canada or Mexico retaliates, U.S. fuel exporters would likely take the biggest hit alongside automakers and other advanced manufacturers, including pharmaceutical producers.

Retaliatory tariffs on the United States would predominantly affect manufacturing-heavy states. Mexico buys 70 percent of New Mexico’s exports, including billions of dollars in U.S. semiconductor chips and electrical components that later return to the United States in Mexican-made cars and appliances. 

Texas sends more than $20 billion in chips, auto parts, and electrical equipment to Mexico; overall, the state’s southbound exports account for 5 percent of its GDP. Tariffs would also dent Ohio’s $5 billion worth of auto and metal exports to Canada as well as Maine’s $320 million in northbound lumber and paper exports. 

Tariffs always result in no winners. It is only in Trump’s mind. The U.S., Canada, Mexico and China will all lose. (The latest is Trump has "paused" the implementation by 30 days). And we in Malaysia will be impacted. We have a high trade-to-GDP ratio of 130% (or more). What this means is that we are well integrated into global trade Hence, sectors like electronics, petroleum products, palm oil and natural gas are all vulnerable. That is only the primary shock, the secondary impact will be on most other sectors. 

What can we do? The Madani Government has to devise ways to diversify exports, depreciate the ringgit and raise domestic consumption. We are in the throes of a major crash, so that oligarchs can buy cheap! 

Reference:

How could tariffs affect the United States? Shannon K. O'Neil, Julia Huesa, PBS News, 2 February 2025