While US President-elect Donald Trump is all set to assume office on January 20, 2025, he has already fired his first salvo with his plans to introduce tariffs on goods entering the US from China, Mexico and Canada, the top 3 US import partners. On Monday this week, in a post on his Truth Social platform, Trump had said that he would sign executive orders imposing tariffs on the three countries as one of his first actions after assuming office on January 20. While he is planning on imposing a 25 per cent tariff on goods coming from Mexico and Canada, there will be an additional 10 per cent tariff (above additional tariffs) on China, citing frustration over drugs, particularly fentanyl, and illegal migrants crossing the US border.
These tariffs, stated a report by JM Financial, appear to violate the terms of the US-Mexico-Canada Agreement (USMCA) on trade signed in 2020. The threat could also lead to an early renegotiation of USMCA rather than in 2026. The US accounts for > 75 per cent of exports from Mexico and Canada.
China, Mexico and Canada are the top 3 import partners of the US. In 2023 and 9MCY24, these three countries contributed 42.8 per cent and 41.7 per cent respectively of US imports. In 9MCY24, China contributed 15.4 per cent of US imports, followed by Mexico, and Canada contributing 13.7 per cent and 12.7 per cent respectively. India’s contribution was only 3 per cent.
Trump’s policies expansionary in nature
JM Financial said that Trump’s policies are relatively expansionary in nature. In line with his ‘America first’ agenda, the policies are focused on promoting indigenous manufacturing, focussed on the growth of American companies, opportunities for American citizens, and the consequent strengthening of the American economy. “He has indicated his preferences for: (1) lowering tax rates for corporates (especially those manufacturing in the US from 21 per cent to 15 per cent); (2) 60 per cent or higher tariffs on imports from China and 10-20 per cent on the rest of world; (3) mass deportation of illegal immigrants, which could impact labour supply; (4) cut aid to Ukraine, curb participation in NATO, while continuing to support Israel and the protection of Taiwan’ and (5) increased influence over the Fed. We believe his policies could lead to higher interest rates, a strong US dollar and a slowdown in global growth,” said economists at JM Financial.
A stronger USD has already started playing out
The USD has strengthened against the Indian Rupee, Mexican Peso, Canadian Dollar, and Chinese Yuan over the last few months with Trump’s chances of being elected as the President increased and further when US Election results were announced. The USD has further strengthened against these currencies post Trump’s comments on Monday.
A positive impact on Indian exporters to the US
With imposition of higher tariffs on China and relatively lower tariffs on India, the ‘China+1’ trade in chemicals, auto ancillaries, wires & cables, solar, solar cells & modules, tiles and numerous other US exporting sectors from India, will get a fresh lease of life, per JM Financial.
Further, according to Motilal Oswal Private Wealth (MOPW), “The potential for higher US corporate tax cuts may enhance IT spending, benefiting Indian IT companies. However, a stronger dollar and possible tariffs could undermine Indian exports. India could bolster its position in global supply chains, particularly in technology sectors like AI and semiconductors, due to previous investments and policy shifts such as the “China+1” strategy. Indian businesses in sectors such as pharmaceuticals and defense might also find new opportunities, especially if US- India collaboration strengthens in response to a more robust Indo-Pacific defense strategy.”
Trump’s posts on his plans for Mexico, Canada and China
In a post on his Truth Social platform, Donald Trump had said, “As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before. Right now a Caravan coming from Mexico, composed of thousands of people, seems to be unstoppable in its quest to come through our currently Open Border. On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders. This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country! Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
In another post, he expressed his frustration with China on drugs, particularly fentanyl, crossing the US border. He said, “I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail. Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our Country, mostly through Mexico, at levels never seen before. Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America. Thank you for your attention to this matter.”