Trump's tariff gamble risks economic turbulence with neighbours
Donald Trump announced that he will impose 25% tariffs on Canada and Mexico. "The potential economic effects could be significant," assesses analyst Maksymilian Kuch. He adds that this might just be Trump's starting position in further negotiations. Economist Piotr Kuczyński shares a similar opinion.
Donald Trump announced on Thursday that he would impose a 25% tariff on products from Mexico and Canada. When asked if the tariffs would also cover oil imports, he stated that he might make a decision as early as Thursday. Ultimately, by Friday afternoon Eastern Time, nothing of the sort had happened.
Mexico and Canada account for nearly 30% of the U.S.'s imports. The new tariffs will take effect on Saturday, February 1st. Trump justifies them as a fight against drug smuggling and illegal immigration, considering the previous actions of neighbours in this regard insufficient. However, contrary to previous announcements, Trump does not currently plan tariffs on imports from China.
American oil refineries import large quantities of oil from Canada—about 20% of the refined raw material. Therefore, the potential prices of this raw material are quite significant. If implemented, gas prices in the U.S. could go up.
Analysts comment
Analyst Maksymilian Kuch from the company XTB comments that the Trump administration's announcement of a 25% tariff on imports from Canada and Mexico might "have far-reaching economic consequences." He notes that the impact on currencies and financial markets is already visible — the Mexican peso has weakened by 1.1%, and the Canadian dollar by 1.2%.
The potential economic effects could be significant. Canada, where exports to the U.S. account for about 20% of GDP, could enter a recession. Disruptions in supply chains in the automotive sector could paralyze production throughout North America. The potential inflationary impact could cause the rate of consumer price increases in the U.S. to rise from 2.4% to about 3%, complicating the Federal Reserve's monetary policy decisions and potentially forcing adjustments in the interest rate trajectory, Kuch assesses.
However, he notes, ongoing diplomatic negotiations indicate possible concessions. Canada proposes creating a joint task force on fentanyl, and Mexico is strengthening border security measures, though direct economic uncertainty persists.
The issue of possibly excluding oil from tariffs remains open. The effects on the energy sector are particularly significant, given that Canada and Mexico together account for about 70% of American oil imports. Potential tariff exemptions for this sector are crucial for the economic stability of the U.S., he adds.
Trump wants oil prices in the U.S. to be low
Piotr Kuczyński from Domu Inwestycyjnego Xelion also highlights the ongoing negotiations between the U.S., Canada, and Mexico. "Indeed, President Trump confirmed on Thursday that from February 1st, a 25% tariff will apply to products from Mexico and Canada, but it seems no one is overly concerned as yet," he comments. The world assumes this is the starting position, and after political discussions, it will turn out to be significantly lower — he evaluates.
As Kuczyński emphasizes, Donald Trump wants oil in the U.S. to be much cheaper. "It is difficult to expect his tariff policy to increase the price per barrel," he points out.
