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Peter Broelman

 

Nick Anderson

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Cathy Wilcox

Trump's set the bar high as he begins his punitive Trade War 2.0 with the rest of the world

 

On 1 February 2025 the U.S. White House released a Fact Sheet entitled "Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China".

Stripping away 90 per cent of the rhetorical posturing contained therein, the fact sheet stated that:

 

"President Donald J. Trump is implementing a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada will have a lower 10% tariff."

Going on to assert: 

"Access to the American market is a privilege. The United States has one of the most open economies in the world, and the lowest average tariff rates in the world.

While trade accounts for 67% of Canada’s GDP, 73% of Mexico’s GDP, and 37% of China’s GDP, it accounts for only 24% of U.S. GDP. However, in 2023 the U.S. trade deficit in goods was the world’s largest at over $1 trillion.

Tariffs are a powerful, proven source of leverage for protecting the national interest. President Trump is using the tools at hand and taking decisive action that puts Americans’ safety and our national security first."

That same day in immediate response to these increased US tariffs, the Canadian Government released the following:

News release (excerpt)

"February 1, 2025 - Ottawa, Ontario - Department of Finance Canada

Today, the Honourable Dominic LeBlanc, Minister of Finance and Intergovernmental Affairs, and the Honourable Mélanie Joly, Minister of Foreign Affairs, announced that the Government of Canada is moving forward with 25 per cent tariffs on $155 billion worth of goods in response to the unjustified and unreasonable tariffs imposed by the United States (U.S.) on Canadian goods.

These countermeasures have one goal: to protect and defend Canada’s interests, consumers, workers, and businesses.

The first phase of our response will include tariffs on $30 billion in goods imported from the U.S., effective February 4, 2025, when the U.S tariffs are applied. The list includes products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. A detailed list of these goods will be made available shortly.

Minister LeBlanc also announced that the government intends to impose tariffs on an additional list of imported U.S. goods worth $125 billion. A full list of these goods will be made available for a 21-day public comment period prior to implementation, and will include products such as passenger vehicles and trucks, including electric vehicles, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.

In addition to this initial response, Ministers LeBlanc and Joly reiterated that all options remain on the table as the government considers additional measures, including non-tariff options, should the U.S. continue to apply unjustified tariffs on Canada......"

On 1 February 2025 the Government of Mexico also responded to the new US tariffs by instructing its Secretary of Economy to implement "tariff and non-tariff measures in defense of Mexico's interests" and its President strongly countering the absurd claims in the White House 'fact sheet' with: 

"We categorically reject the White House's slander against the Mexican government of having alliances with criminal organizations, as well as any intention of intervention in our territory.

If such an alliance exists anywhere, it is in the United States armories that sell high-powered weapons to these criminal groups, as demonstrated by the United States Department of Justice itself in January of this year."

As yet, Mexico has not indicated which US goods would be included in retaliatory tariffs. However media reports canvas the possibility of pork, cheese, fresh produce, manufactured steel and aluminium being included.

China's response became known on 2 February 2025.

China Daily, 2 February 2025:

China will file a lawsuit with the World Trade Organization and take necessary countermeasures to safeguard its rights and interests, the Ministry of Commerce said on Sunday after the United States announced it would impose 10 percent additional tariffs on goods from China.

The Ministry of Commerce said in a statement that the unilateral imposition of tariffs by the US seriously violates the rules of the WTO, fails to address US domestic issues, and undermines regular economic and trade cooperation between the two countries.

"We urge the US to objectively and rationally view and handle its own fentanyl and other issues, rather than resorting to tariff threats against other countries," the commerce ministry said in a statement.

China urges the US to correct its wrong actions, move toward the same direction as the Chinese side, face problems directly, engage in frank dialogue, strengthen cooperation and manage differences on the basis of equality, mutual benefit and respect, the commerce ministry said.

Exactly how much Trump's trade war is going to cost all four national economies is uncertain but it is not unreasonable to start the count in the billions of dollars annually if the situation continues unchecked. If so this can be expected to knock percentage points of the Gross Domestic Product of Canada, Mexico and probably that of the national debt-ladened United States.

The implications for Australia are uncomfortable to say the least.

In the first instance because assurances appear to have been given to Canada and Mexico in 2024 that the US tariffs imposed on their goods & services in 2025 would not reach anywhere near 25 per cent and, Australia can no longer have confidence that the new tariff level discussed with it will be a low as promised.

In the second instance because there is no way that global trade will not experience some disruption as these tariffs are rolled out to more OECD countries during the coming months and, as Australia with an export market spanning at least 27 of the 38 countries in this category we have a potential risk exposure independent of whatever absurd import/export trade demands Trump decides to makes of us.

BACKGROUND

Financial Review 30 January 2025, p.19 excerpt:

US national debt is around $US30 trillion ($48 trillion), bringing annual interest costs for the government near $US1 trillion and helping tip the nation's budget into a $US1.8 trillion deficit in fiscal 2024.

Sovereign debt accelerated sharply following the COVID-19 pandemic. That has sparked wider market concerns about the sustainability of the US balance sheet and sent bond yields advancing since Trump's election win in November. The bond market reaction is a concerning sign, according to Mr Lamm, given the US Federal Reserve has already begun to cut rates.

"The bond market appears to be taking a cautious view on rising inflation risks and elevated US budget deficits into an environment where there remains a high degree of uncertainty regarding the ultimate form and impact of President Trump's economic policies."

Meanwhile, gold - traditionally perceived as a safe haven asset to ride out wider market volatility - rose more than 25 per cent last year, touching a record high of nearly $US2800 an ounce in October.

Its best year in more than a decade was attributed to strong demand from global central banks - particularly the People's Bank of China, which revealed last month that it had resumed buying gold in November after a six-month hiatus....