Trump's tariff threat on Mexico and Canada shakes markets
Donald Trump announced that he would impose 25% tariffs on Canada and Mexico. The potential economic effects could be significant, assesses analyst Maksymilian Kuch. He adds that this might just be Trump's starting position in further negotiations. Economist Piotr Kuczyński shares a similar opinion.
Donald Trump announced on Thursday the imposition of 25% tariffs on products from Mexico and Canada. When asked if the tariffs would also cover oil imports, he stated that he might make a decision on this matter later on Thursday. Ultimately, nothing like that happened by Friday afternoon Eastern Time.
Mexico and Canada account for nearly 30% of U.S. imports. The new tariffs are set to take effect on Saturday, February 1, with Trump justifying them as a measure against drug smuggling and illegal immigration, considering the current efforts by neighbors to be insufficient. Contrary to earlier announcements, Trump does not currently plan tariffs on imports from China.
American oil refineries import large quantities of oil from Canada, about 20% of all refined raw material. Therefore, the potential impact on oil prices is very important. If implemented, gasoline prices in the U.S. could rise.
Analysts comment
Analyst Maksymilian Kuch from the company XTB comments for money.pl that the announcement of the imposition of 25% tariffs on imports from Canada and Mexico by the Trump administration may "have far-reaching economic consequences." The impact on currencies and financial markets is already visible — the Mexican peso weakened by 1.1%, and the Canadian dollar by 1.2% — he points out.
The potential economic effects would be significant. Canada, where exports to the U.S. account for about 20% of GDP, could enter a recession. Disruptions in supply chains in the automotive sector could paralyze production throughout North America. Potential inflationary impacts could cause the growth rate of consumer prices in the U.S. to increase from 2.4% to about 3%, complicating Federal Reserve monetary policy decisions and potentially forcing adjustments in interest rate trajectory, Kuch assesses.
However, he notes that ongoing diplomatic negotiations indicate possible concessions. Canada proposes creating a joint task force on fentanyl, and Mexico is strengthening security measures at the border, though direct economic uncertainty persists.
The issue of potentially exempting oil from tariffs remains open. The effects on the energy sector are particularly important, considering that Canada and Mexico together account for about 70% of U.S. oil imports. This makes potential tariff exemptions for this sector strategically crucial for U.S. economic stability, he adds.
Trump wants oil to be cheap in the U.S
Piotr Kuczyński from the Investment House Xelion also notes the ongoing negotiations between the U.S., Canada, and Mexico. Indeed, President Trump confirmed on Thursday that starting February 1, there will be 25% tariffs on products from Mexico and Canada. Still, it seems that no one has noticed yet. The world assumes that this is a starting position, and after political talks, he assesses that the tariffs will be much lower.
As Kuczyński emphasizes, Donald Trump wants oil in the U.S. to be much cheaper. It is hard to expect that his tariff policy would raise the price of a barrel, he points out.
