Uncertainty Looms Over Imminent Tariff Implementation

American consumers were rushing yesterday to finalize vehicle purchases before the new 25% tariffs imposed arbitrarily by Trump on Canada and Mexico take effect today, Tuesday. Meanwhile, customers urged merchant ships from China to unload their orders, anticipating the additional 10% that all products manufactured in that country will face if President Donald Trump does not change his mind.

His Secretary of Commerce, Howard Lutnick, stated on Sunday that the president had not yet made a decision, seemingly enjoying the commercial tension sparked by pushing his protectionist agenda through decrees. Trump had already postponed the implementation of tariffs on February 4, giving them a month to negotiate new trade conditions more favorable to the US than those he renegotiated during his first term. He then replaced the North American Free Trade Agreement (NAFTA) with what he simply called the United States-Mexico-Canada Agreement (USMCA).

The bargaining chip for that extension was the deployment of troops to the border and other measures by Mexico and Canada to combat fentanyl trafficking. Last week, he again surprised his main trading partners with new tariffs, deciding that "they are not doing enough."

In contrast to the submission of American neighbors, China acts cautiously until it truly understands what is at stake. While Justin Trudeau and Claudia Sheinbaum hurried to speak by phone with the US president, Xi Jinping's call has not materialized, despite their good relations. Accustomed to negotiating from a position of strength, Trump could deal a blow to the Asian giant that cements his image as a tough negotiator. "I negotiated a very good deal with China during my first term. The problem is that Biden did not enforce it," Trump protested.

His Secretary of Commerce assured on Sunday that the situation is "fluid" because Mexico and Canada are doing "a lot" to meet the demands of the US president, but he did not seem equally satisfied with China's response. North American neighbors have sent delegations to Washington, where they have been negotiating intensively for weeks. Beijing has not responded with the same speed that Trump would like to see, despite being more lenient with China than with its neighbors, who account for 40% of all US imports and nearly half of all cars imported and exported. Many automotive parts assembled in Detroit are manufactured in Ontario, just a few kilometers away. The effects, unions assure, will be felt throughout the US.

American consumers' confidence in economic recovery after the pandemic is crumbling with fears that these tariffs will trigger an inflationary spike, as analysts predict. In the University of Michigan index, consumer sentiment has unanimously plummeted from 71.7 in January to 64.7 at the end of February. Analysts' expectations that inflation will rise again confirm their fears.

The automotive industry argues that it should be exempt from tariffs, as is the case with the Canadian energy sector, because they have made significant investments in recent years based on the terms signed by Trump himself. Any increase in vehicle costs will be immediately felt by consumers, as the industry is not versatile enough to relocate its factories at high speed, warned Matt Blunt, president of the American Automotive Policy Council, representing Ford, General Motors, and Stellantis. For now, Trump has shown no inclination to spare them from the fire.