NEWS
NEWS

The first shot of the trade war

Updated

Trump suspends the entry into force of his tariffs on Mexico and Canada for a month, causing nervousness in global stock markets and impacting his own companies

US President Donald Trump.
US President Donald Trump.AP

Donald Trump promised excitement and he delivered. The President of the United States has launched a dance of tariffs that has created an atmosphere of uncertainty in international trade, threatening the entire global economy and combining with his threats to the sovereignty of his allies Canada, Denmark, and Panama.

First, Trump said he would raise tariffs on January 20, when he assumed power, between 10% and 20% on all imports to the United States, with the exception of those from China, the third-largest trading partner of the US, where the increase would be 60%. That day passed without incident. However, more than a week and a half later, last Friday, the US President announced the imposition of 25% tariffs on all goods from the two largest trading partners of the US, Mexico and Canada (the latter also being a NATO ally), and 10% on China.

With Wall Street in free fall due to the news, Trump changed his plans. After speaking with his Mexican counterpart, Claudia Sheinbaum, the US President announced the suspension of tariffs with that country for a month. The key is an agreement for Mexico to deploy its National Guard to monitor the border to contain the fentanyl traffic, a drug that causes 70,000 deaths a year in the US and whose production uses products exported by China. In return, the US commits to control arms sales in Texas and other southern states, which supply the private armies of Mexican drug cartels.

A few hours later, Trump spoke with the acting Canadian Prime Minister, Justin Trudeau, and a similar agreement was reached. Canada will deploy 10,000 officials to combat illegal immigration and will spend 1.25 billion euros on border protection.

These are two commitments that do not go beyond good intentions. And, in the case of Canada, it is a farce. Because there is no more illegal immigration from Canada to the United States than there is in the opposite direction, as several thousand Americans live undocumented in their northern neighbor. Illegal immigration from Mexico to the US has also plummeted since last summer. However, this has not stopped Trump from deploying 1,500 troops to the border with great media fanfare to stop what he calls an "invasion." The soldiers are also deployed with all their combat gear, as if they were going to war in Afghanistan. In recent days, their commanders have informed them that Mexican drug cartels want to assassinate Donald Trump, so they must increase security measures.

Regarding the fentanyl issue, the entire debate would be laughable if it were not politicizing a tragedy of immense proportions. In 2023, the US seized 20 kilos of that drug being transported from Canada. Meanwhile, that country also intercepted five kilos of fentanyl traveling from its southern neighbor. This is a completely different situation from Mexico, where 14 tons of this opioid were intercepted that year, 89% of them on the US side of the border.

In the case of China, the tariffs - which are actually taxes paid by US importers, not exporters from other countries, as Trump claims - will remain. In any case, the fact that barriers with that country will only be 10%, 60% lower than those with Canada and Mexico, "underscores Trump's lack of interest in his always emphasized competition between the US and China," as stated yesterday to this newspaper by Stan Veuger, senior economist at the liberal think tank American Enterprise Institute in Washington.

It seems that the potentially greatest disruption to the global economy since Russia's invasion of Ukraine and the subsequent sanctions against that country is being defused. If Trump ends up - now, in March, or whenever he wants - fulfilling his threats, he will plunge the ninth (Canada) and fourteenth (Mexico) largest world economies by nominal GDP size into a recession.

The impact is more serious for two reasons. The first is that tariffs on Mexico would be a torpedo to the restructuring of the global economy initiated with Covid-19 and reinforced by the invasion of Ukraine and the attacks by Houthi militias on naval traffic in the Red Sea, summarized in one word: nearshoring.

Nearshoring is the approach of production centers to consumer countries. This means that, instead of manufacturing in China or Vietnam, companies do so in Mexico or Turkey, to be closer to their final markets, in this case, respectively, the US and the EU. No country has been as insistent on the need for companies to leave China to be close to the US as the US itself, both with Donald Trump and Joe Biden.

Nearshoring has led to an increase in foreign direct investment in Mexico, not only from US companies but also from Chinese and European companies attracted by the country's geographical proximity to the US, its low labor costs, and the integration of both economies. Now, Trump has decided he doesn't want that, even though he forced Mexico and Canada to renegotiate the Free Trade Agreement between those countries and the US in 2020, which, according to the President himself, led to "the biggest, most significant, modern, and balanced agreement in history."

The message Donald Trump is conveying is that all treaties the US has signed are worthless. On Friday, in a fierce editorial criticizing Trump's decision, the 'Wall Street Journal' recalled a quote from the late Arabist Bernard Lewis, who, referring to Washington's policy in the Middle East, had written that "as an enemy, the US can be ineffective; as an ally, it can be deadly." Because Trump has used political arguments to impose tariffs, just as he did last week to force Colombia to accept US military planes with expelled immigrants.

Perhaps the most worrying aspect is the reason Trump justified, in his usual prose full of capital letters, the tariffs on that country on his social network Truth. With trade taxes, "Canada will cease to exist as a viable country. It's tough, but that's how it is! Therefore, Canada should become our beloved 51st state with much lower taxes, and better military protection for the people of Canada. And NO TARIFFS!" Denmark, a country hiring all Washington lobbyists to address Trump's territorial claims on Greenland, should take note.