After dismissing such threats as bluffs, I now wonder if Trump might be stupid enough to do what he says.

Trump on 25 Percent Tariffs

In a post-inauguration talk with reporters Trump said “We’re thinking in terms of 25% (tariffs) on Mexico and Canada because they’re allowing a vast number of people” to cross the border.

“Canada Also a Very Bad Abuser”

Video Length: 00:03:38

Implied Irony

The idea that Canada is a vast abuser of illegal border crossings is ridiculous. But assume it’s true.

If so, the implied irony is Trump will fail to close the border.

Moreover, the immigration charge has nothing to do with the the “best in history” USMCA trade deal that he negotiated.

Finally, Trump has discussed imposing tariffs on China but has now ordered federal agencies to study the potential impacts before making a decision.

Imposing tariffs on Canada and Mexico but not China is more than a bit illogical for obvious reasons.

Canadian and Mexican Response

The Canadian foreign minister said Canada is working on preparing a response and working on a plan of retaliation. “Our county is absolutely ready to respond.”

Retaliation is very easy. All Canada has to do is block crude exports and minerals.

A response from Mexico is also easy. Mexico can block medical exports to the US.

That would stop most US medical operations cold. Most surgical kits come from Mexico.

US Exports and Imports

US exports and imports, Mexico, Canada, and China

Mexico can easily match the US on tariffs.

Trump is upping the rhetoric on Mexico, Canada, and China on top of previous tariff threats. Who will be hardest hit?

Import/Export data from Trading Economics, chart by Mish

Huge Potential Trade Disruptions

• Canada and Mexico can easily shut down US vehicle manufacturing.
• Canada can disrupt US refining causing the price of gasoline to soar.
• Mexico can disrupt US medical operations.

Canadian Crude

The US produces 13.5 mbpd of oil: 3.5 mbpd of this is conventional heavy oil and 10 mbpd is light shale oil. Our refineries were all built prior to 1980 and were only designed to use heavy oil. As our conventional heavy oil production dropped from 10 mbpd in 1970 to 3.5 mbpd today, we had to import heavy oil from Canada, Venezuela, and Mexico to make up the difference.

Putting a tariff on Canadian heavy oil will not spur production of US heavy oil. We are producing less heavy oil every year as our fields deplete. But we are producing more light oil each year. Too bad we can’t actually use much of it ourselves.

Putting a tariff on Canadian oil will only result in higher feedstock prices for US refiners, and higher prices for US consumers for gas, diesel, fuel oil etc.

The above oil comments from Mish reader PapaDave.

Canada can respond to US tariffs with a huge export tax on Crude.

A mere shutoff of $22 billion in medical kits from Mexico would disable US medical operations instantly.

Related Posts

November 27, 2024: What Industries Will Suffer the Most Under Trump’s Plan to “Make Tariff’s Great Again”?

Trump is upping the rhetoric on Mexico, Canada, and China on top of previous tariff threats. Who will be hardest hit?

January 14, 2025: Canada Says It Will Match US Tariffs If Trump Launches Trade War

Canadian prime minister Justin Trudeau says Canada will respond in kind to Trump’s tariffs.

January 18, 2025: The US Trade Deficit with China is Understated by as Much as 30 Percent

Normal trade math does not add up. US imports and China exports are not in sync.

If Trump is indeed stupid enough to break his own USMCA deal, not a single country could ever trust entering a deal with Trump.

My basic instinct has been “Trump cannot possibly be that stupid.” But if he is, Trump’s Secretary of Treasury, Scott Bessent, will talk him out of it.

I am now wondering if I am wrong. Of course, it could still be a bluff after all. We find out on February 1.

I suppose the best way forward is for Mexico and Canada to stroke Trump’s ego by pledging something trivial while moaning what a hard bargainer Trump is.

If Canada and Mexico stroke Trump’s ego enough, we might avoid a very destructive global trade war.

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