The White House announced wide-ranging tariffs against the U.S.'s biggest trading partners: Mexico, Canada and China. At the last minute, both Canada and Mexico negotiated a pause. WSJ’s Gavin Bade unpacks the significance of the tariffs and the latest updates. Further Reading: -Trump Slaps Tariffs on Mexico, Canada and China in Opening Salvo of Trade War -Trump Aides Hunt for 11th-Hour Deal to Dial Back Canada-Mexico Tariffs Further Listening: -Trump 2.0 A Whiplash on Federal Spending -Trump 2.0: A Fast Start to a Second Term -How One Business Is Getting Ahead of Trump’s Tariffs Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What triggered the recent tariffs on U.S. trading partners?
On Saturday, Trump's trade war began. His administration announced major tariffs on the country's three biggest trading partners, Canada, Mexico, and China.
So we're talking about 25% on Canada, 25% on Mexico. Those are our two biggest trading partners. With the exception of crude oil and energy products, they'll get a 10% tariff. That's our colleague Gavin Bade. And then a 10 percent additional tariff on all imports from China, which is our third largest trading partner.
Chapter 2: How significant are the tariffs imposed by Trump?
So dollar for dollar, we're looking at a tariff action that is larger than anything Trump did in his first term. And he did it all in one day. I think he did more than even some people inside the White House thought he would.
When were these tariffs set to go into effect?
Tuesday, tomorrow, very, very quickly. So he promulgated them. He made the announcement on Saturday night after, you know, promising and getting everyone whipped up into a frenzy over the past few weeks. There was a lot of frantic lobbying around Washington, you know, Canadian and Mexican officials flying here, meeting with senior U.S.
officials, trying to convince them otherwise, saying, you know, we'll do anything to get around these tariffs. You know, what do you want?
Chapter 3: What are the immediate reactions to the tariffs?
Does this lead to a trade war?
It certainly seems that way. I mean, Canada and Mexico have said that they are ready to respond. Canada is going to slap tariffs on U.S. shipments, you know, the same day that we do. And Mexico has promised to do the same.
Chapter 4: How did Canada and Mexico respond to the tariffs?
And actually, the Trump administration anticipated this, and they put a provision in these tariff orders that says if Canada, Mexico, and China hit back, then they're going to make the tariffs even higher. So you can really see how this could spiral into even more of a trade war than we're having already.
But before those tariffs could go into effect, a pause was put in place for Mexico and Canada after the two countries made concessions. And Trump is planning to talk to China in the next day. Welcome to The Journal, our show about money, business, and power. I'm Kate Linebaugh. It's Monday, February 3rd. Coming up on the show, Trump's trade war. Is it on or is it off?
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Trump has said he loves tariffs.
I always say tariffs is the most beautiful word to me in the dictionary.
Why? What does Trump want to use tariffs for?
Trump wants to use tariffs in the classical sense of building American manufacturing. So he was elected talking a lot about how manufacturing has gone overseas, whether automotive manufacturing or even lower down the value chain. And he's saying, you know, I'm going to put these tariffs back in place so that companies like the automotive companies have to build their factories here.
They have to build their products here.
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Chapter 5: Why is Trump using tariffs as a tool for non-trade issues?
Can you tell us why? What are tariffs? And how have governments historically used them?
So a tariff, you can just think of it as a fee that is paid on a product when it comes into this country.
Like a tax?
Like a tax, right? It's a tax or a fee that you pay at the port of entry. The theory behind tariffs is you want to make products from other countries more expensive to make the products that you make in your country more competitive. So historically...
almost every industrialized country including the united states has used tariffs to protect what they would call infant industries industries that are just getting started and they want to create growth for them right and so think about you know when any industry the steel industry in the united states was starting for instance you had really high protective tariffs all throughout the 19th century to protect it from competition from overseas markets
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Chapter 6: What are the historical uses of tariffs?
On the day he was inaugurated, Trump said he'd impose these tariffs on Mexico and Canada, 25% tariffs. Was that a surprise?
It was a surprise in certain ways. He'd always said that he was going to do really intense tariffs on the campaign trail. Then he came in on the first day and he put out a policy memo saying we're going to study all of our trade deals and all of our trade policies. And so for a moment there, we all thought, hey, there's going to be a process here. They're going to do economic studies.
And then only a few hours after he issued that memo, he came out and made that tariff threat.
But this round of tariffs isn't rooted in that kind of classical economic thinking you talked about earlier. Tell us about the rationale the Trump administration is using to impose these tariffs.
So there's a few general motivations here. Generally speaking, Trump has said the first and foremost, it's about the illegal fentanyl trade that they say has killed tens of millions of American citizens. That's maybe an inflated measure, but killed a lot of American citizens, right?
They say that this fentanyl and the precursor chemicals are produced in China, shipped over to the United States, and then manufactured in factories in Canada and Mexico and smuggled over the border, right? And so he has said his tool for getting them to stop this is to put tariffs on them until they make it stop. But this is sort of a non-trade issue that he is using trade tools against.
That's one motivation. The second motivation is what he would call illegal migration through Mexico, mostly from Central and South America, from other nations as well, through Mexico. He has said he wants Mexico to stop that completely. And until they do... He's going to put tariffs on it. So again, a non-trade issue that a trade remedy is being used for.
And then there's a number of lingering trade disputes from this U.S.-Mexico-Canada agreement that he signed, right?
That's the new NAFTA.
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Chapter 7: How are U.S. industries reacting to the new tariffs?
The new NAFTA, yes. So Trump signed this in 2020. He said it was the best deal ever and now is contravening it by putting tariffs into place, right? So he would say, although they made the automotive rules much tougher there, it's still a concern of his that there is still automotive manufacturing in Mexico and Canada. He would rather see that come over the border and be back in the United States.
Trump's tariff plans sent Canadian and Mexican officials into a scramble.
Canada and Mexico have basically said, tell us what you want us to do on this and we will do it, right? They've set up new fentanyl and migration working groups. And, you know, the administration all throughout last week was pretty publicly optimistic, right? You heard Caroline Leavitt, the press secretary, say, you know, Mexico's making some great progress on migration.
And, you know, we're having good talks with Canada as well.
The president has also put out specific statements in terms of Canada and Mexico when it comes to what he expects in terms of border security. We have seen a historic level of cooperation from Mexico.
U.S. industries also started lobbying the Trump administration over the tariffs, asking for delays and even exemption.
There were a lot of U.S. industries, especially like the automotive industry, which does a ton of trade with Canada and Mexico, who had been begging him to put an exemptions process into this, basically a process to get a carve out from the tariffs.
They were saying, look, we have continental supply chains that we have put in place because of the trade deal that you negotiated with Canada and Mexico in your first term, the so-called U.S.-Mexico-Canada agreement that replaced NAFTA. We made our supply chain, said the automotive industry, according to that deal that you negotiated and signed.
So at least the cars that we make that are compliant with that deal, please make them exempt from these tariffs. Trump said, no, thanks. I would rather hit all of the automotive consumers with tariffs, all the automotive companies with tariffs.
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