When newly elected President Donald Trump announced on his first day in office that he would impose sweeping tariffs on major trading partners, he signaled a return to a favored strategy: an inverted carrot-and-stick that applies the stick of dire consequences to countries around him to give what he wants. In this case, that means tougher action against illegal migration and drug trafficking to the US
The risk of applying this tactic to foreign trade is that the entire US economy is so dependent on the status quo that any miscalculation could have damaging consequences, especially in California and other trade-dependent states.
To some extent, that happened during Trump’s first term, when selective tariff increases sparked costly trade wars with China and others.
The impact of tariffs could have major damaging effects on California’s globally integrated economy, affecting thousands of businesses and many more affecting jobs, consumer prices and commodity choices. And if trading partners retaliate, tariff increases could hurt the state’s sales of agricultural products, electronics, transportation equipment and other key exports. Mexico and Canada are the top two destinations for California’s exports, and China and Mexico are responsible for the majority of the state’s imports.
Even uncertainty about such possibilities could wreak havoc on financial markets and heighten fears of higher prices, as well as disruptions to vital businesses that rely mainly on Mexico and the Pacific Rim.
Trump posted on his Truth Social site late Monday that he would impose 25% tariffs on all goods from Canada and Mexico on his first day in office, as well as an additional 10% levy on Chinese imports. He said these countries – which are the United States’ top three trading partners – would pay the price for not doing enough to combat illegal migration and the flow of drugs into the US.
“This tariff will remain in effect until drugs, especially Fentanyl, and all illegal aliens stop this invasion of our country!” Trump wrote.
The reality is that illegal border crossings from Mexico have dropped dramatically in recent months as the Biden administration has tightened especially the arrivals of asylum seekers.
Read more: Within a flawed immigration system: millions of undocumented workers and a verification program that few use
And according to Department of Homeland Security statistics, U.S. drug seizures along the southwest border have changed little in recent years.
China has for years been a major producer of fentanyl entering the US, and Trump said in his post that Beijing has failed to pressure drug suppliers as it had promised.
Canada is not a major source of illegal drugs or illegal migration to the US, although there has been a sharp increase in illegal border crossings along the northern border in the past year, largely driven by Indians. Trump did not explain why Canada was targeted, but some analysts said he may view the drug and migration situation as a North American problem.
U.S. stock markets, which have been on a run in recent days, opened mixed on Tuesday but ended the day higher, suggesting investors are familiar with Trump’s playbook and these three countries can avoid tariffs if they have a credible plan present to restrict the drug. supply and secure the borders, according to Capital Economics analysts. Mexico averted a similar Trump threat over illegal migration in 2019.
But Trump’s salvo just three weeks after the election, plus his frequent campaign promises of tariff hikes, indicate he will move more quickly on his trade agenda than during his first term.
Trump has said he would impose tariffs of 10% to 20% on goods from around the world, and up to 60% on imports from China.
The consequences could be serious for California’s economy, given heavy trade with China and Mexico.
Imports from China ($120 billion) and Mexico ($62 billion) accounted for as much as 40% of the $450 billion of global products that entered California last year. And Mexico, Canada and China are among the state’s three largest export markets.
Overall, international trade, investment and related commerce employ hundreds of thousands of Californians and are a major economic engine for the state.
At the Port of Los Angeles, the Chinese share of all cargo, measured in containers, has fallen from 57% in 2022 to 43%. But the Port of LA, the nation’s busiest, has continued to grow in overall volume due to increased shipments from other Pacific Rim countries.
As US-China relations have deteriorated over the past decade, many manufacturers in California, as elsewhere, have shifted at least some production and suppliers from China to other locations in Asia and also to Mexico. But the scale of the tariffs Trump announces, whether 10% across the world or separate tariffs on Chinese, Mexican and Canadian goods, would be too big for other countries to make up.
Much of U.S. imports from China and Mexico consist of consumer goods and intermediate parts for automobiles, appliances and other products. Southern California clothing companies have been sending clothes to be sewn and finished in Mexico duty-free for years. Vehicle parts often cross back and forth across the North American border several times before being finally assembled – and tariffs added along the way will mean higher prices for everyone.
Now those long-standing supply chains could be in jeopardy, as analysts expect Trump will try to renegotiate trade deals with North American partners and others, using tariffs and the large U.S. economic market as leverage.
“It will be a shock to the system, and ultimately it will impact consumers’ wallets,” said Rachel Michelin, president of the California Retailers Assn. She said her affiliates have tried to get ahead of the higher tariffs by ordering products before Trump takes office.
Read more: Apart from the big stock market rally, what does Trump’s victory mean for the economy?
“From a California perspective, it will be alarming because the cost of living is higher here,” Michelin said. “We really price people out of living in California.”
During Trump’s first term, China and other countries hit back by raising tariffs on sensitive US agricultural products, including soybeans and wine. But overall trade also slowed, with U.S. companies rushing to apply for tariff exemptions and curry favor with his administration for aid.
Jock O’Connell, a California-based trade specialist at Beacon Economics, said the Trump administration’s trade skirmishes with China in 2017 caused a dramatic drop in the state’s trade volume. California exporters learned to diversify their markets. This time, he said, the state may have even fewer options. .
“There won’t be much political gain” from helping California, O’Connell said. “Can you imagine? [Gov.] Newsom flies to Washington to meet with trade officials at the White House to discuss tariffs?
Greg Danenhauer, co-owner of Parker Boiler, a manufacturer in City of Commerce, said he still buys some steel and cast iron burners from China, but looks to China for less than 18% of his supplies, compared to just no less than 25%. % in 2016. Parker Boiler also purchases temperature controllers and other products from Mexico.
Danenhauer said Trump’s previous tariffs on Chinese products actually helped level the playing field for domestic manufacturers like himself. And he’s not worried about higher rates in the future.
“To me, everyone is panicking about it,” he said. “But we don’t know yet” what will happen, he said.
Dan Ujczo, a trade attorney at the Ohio-based firm Thompson Hine, drew a distinction between Monday’s tariff announcement, which he said was “very tactical and transactional, focused on a specific goal,” and Trump’s plans on universal tariffs and those focused on China. The latter “are more transformative or transitional when it comes to global trade,” he said, adding that they will likely be proposed later and closer to the time when tax cuts and other budget plans are ready.
During his first term, Trump often used threats such as high tariffs to force US allies to make concessions. In defense policy, for example, he famously expressed doubts about continued U.S. participation in the North Atlantic Treaty Organization; The European allies responded by increasing their contributions to the costs of mutual defense.
Chinese imports are already subject to US tariffs ranging from 10% to 25% as a result of Trump’s actions during his first term and which have been left in place by President Biden. That helped Mexico overtake China as the United States’ top two-way trading partner in 2021. Still, the United States’ largest trade deficit remains China’s, at more than $279 billion last year, according to the Census Bureau.
Trump’s tariffs announced Monday, if implemented, would almost certainly cause significant disruption to the industry and raise consumer costs for gas, cars and a variety of other products, potentially reigniting inflation that appeared to be a key factor in his election victory.
The U.S. imported a total of about $1.3 trillion worth of goods from these three countries last year, and about two-thirds of that amount arrived tariff-free, thanks to the U.S. Free Trade Agreement with Mexico and Canada.
Despite that trade deal, experts said Trump could impose the tariffs by using legal authority under the International Emergency Economic Powers Act of 1977, which he cited extensively during his first term, including in his dealings with Mexico and China.
Whether tactical or not, tariff threats could escalate; Mexico has already said it could retaliate with counter-tariffs. And some economists warned that Trump’s plans could backfire.
“It’s a reckless grenade throw,” said Michael Clemens, an economics professor at George Mason University who specializes in international migration. “Harming American consumers and workers with a trade war will do absolutely nothing to address their concerns about immigration and drugs.”
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This story originally appeared in the Los Angeles Times.
