If President Donald Trump believes that Mexico and Canada are damaging America’s national security by failing to sufficiently help us on the border to prevent illegal crossings and the influx of fentanyl and other drugs, or not helping us defeat the Mexican cartels – then I believe he is absolutely right to use his tough tariff diplomacy by slapping 25% tariffs on both countries.
And that includes the 10% tariff hike on China, which is supplying the fentanyl drug components that are then manufactured in Mexico and sent across the U.S. line. China is also subverting the USMCA North American free trade deal by building plants in Mexico and then dumping cheap cars into the U.S., without adhering to U.S. domestic content and other rules.
With today’s announcement by Press Secretary Karoline Leavitt that President Trump has made up his mind and will impose these tariffs tomorrow, it’s very clear that that is the President’s conclusion.
Whether he has any specific metrics in mind regarding illegal border crossings or drugs, or sex trafficking, remains to be seen. Whether he will engage in additional negotiations with Canada and Mexico remains to be seen.
But he has laid down the law. Tariffs are a legitimate tool to engage in national security policy as well as economic policy.
Presumably, if Mexico and Canada meet Mr. Trump’s requirements, then the tariffs could be lifted. But we don’t know that. And we await some sort of statement from the President himself, perhaps tonight or tomorrow.
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By the way, Mexico’s ties to China have become a major problem. Mexican imports from China have increased 50% over the last 5 years. And Chinese investment in Mexico is up the same 50%. USMCA rules must be changed to place explicit limitations on Chinese content.
Right now, the U.S. is running a $170 billion trade deficit with Mexico, sustained across numerous product groups.
Canada is a different story. The U.S. is running a $60 to $70 billion trade deficit with them, but if energy is removed we actually have a surplus with Canada – including auto and manufacturing goods. 60% of U.S. oil imports come from Canada.
But Canadian oil companies provide us with a 20% discount because their heavy crude has to be refined into gasoline and diesel fuels. As some oil experts point out, a 25% tariff wipes out the 20% discount. And they fear that gasoline prices in the Midwest and the northern states could jump by 40 to 75 cents. So, the oil industry is hoping for a carve-out from the 25% tariff.
On the tariff news announced by Mrs. Leavitt, the Dow Jones fell 330 points. Wall Street continues to believe that tariffs are inflationary.
As I’ve suggested before, they are not.
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Sure, there might be some minor one-time product price increases. But exporters to the U.S. will bear 50% or more of the tariff increase by lowering their prices in order to sell to American consumers and businesses. That was our experience with China during Trump’s first term.
The only way inflation is going to pick up in any sustained fashion is if the Federal Reserve keeps the printing presses wide open.
In Mr. Trump’s Truth Social post on Wednesday, he criticized the Fed for failing to stop the massive Bidenflation that ruined blue-collar affordability with a 20%-plus price hike over the past four years.
But Mr. Trump’s economic program of lower tax rates, deregulation, unleashing energy production, large reductions in federal spending and the DC bureaucracy, is itself profoundly counter-inflationary and pro-growth. That is why inflation is not the issue.
And, yesterday, Mr. Trump posted on Truth Social that he will not tolerate any replacement of the mighty U.S. dollar in international trade. He threatened 100% tariffs on the so-called BRICS countries — Brazil, Russia, India, China, and South Africa. King Dollar is also counter inflationary.
Instead, Mr. Trump’s tariff diplomacy is geared toward protecting America’s national security – and its economic security.
And he insists… that America comes first.
