Trump's tariff threat looms over North American trade ties
Donald Trump has announced he will impose 25% tariffs on Canada and Mexico. "The potential economic effects could be significant," states analyst Maksymilian Kuch. He suggests this may merely be Trump's initial position in forthcoming negotiations. Economist Piotr Kuczyński shares a similar viewpoint.
On Thursday, Donald Trump announced 25% tariffs on products from Mexico and Canada. When asked if these tariffs might include oil imports, he mentioned he could decide as early as Thursday. However, no such decision had been made by Friday afternoon Greenwich Mean Time.
Mexico and Canada represent nearly 30% of the USA's imports. The new tariffs will take effect on Saturday, February 1st. Trump justified them as a measure against drug smuggling and illegal immigration, citing previous efforts by these neighbouring countries as inadequate. Contrary to previous announcements, Trump currently has no plans to impose tariffs on imports from China.
American oil refineries import significant quantities of oil from Canada—about 20% of the total refined crude. Thus, the potential prices of this resource are substantial. If implemented, petrol prices in the USA could rise.
Analysts comment
Analyst Maksymilian Kuch from the company XTB comments for money.pl that the Trump administration's announcement of imposing 25% tariffs on imports from Canada and Mexico might "have far-reaching economic consequences." He notes, "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 USA account for about 20% of GDP, might enter a recession. Disruptions in supply chains in the automotive sector could halt production across North America. The potential inflationary impact might push the rate of consumer price increases in the USA from 2.4% to about 3%, complicating the Federal Reserve's monetary policy decisions and potentially necessitating interest rate adjustments - Kuch assesses.
However, he notes, ongoing diplomatic negotiations suggest potential concessions. Canada proposes creating a joint task force on fentanyl, and Mexico is strengthening border security measures, though direct economic uncertainty remains.
"The issue of potentially excluding oil from tariffs remains unresolved. The effects on the energy sector are particularly significant, given that Canada and Mexico account for about 70% of American oil imports. He adds that exempting this sector from tariffs would be strategically crucial for the USA's economic stability".
Trump wants oil prices in the USA to be low
Piotr Kuczyński from Dom Inwestycyjny Xelion also highlights the ongoing negotiations between the USA, Canada, and Mexico. "Indeed, President Trump confirmed on Thursday that, starting 1st February, 25% tariffs will apply to products from Mexico and Canada, but it seems no one is overly concerned at present," he comments for money.pl. "The world assumes this is a negotiating tactic, and after political discussions, the tariffs will likely be reduced significantly" - he evaluates.
As Kuczyński emphasizes, Donald Trump desires lower oil prices in the USA. "It is difficult to envisage his tariff policy increasing the price per barrel," he notes.