Volkswacht Bodensee - White House says Trump to impose Canada, Mexico, China tariffs at weekend

Trump has reiterated his plans for 25 percent tariffs on neighbors Canada and Mexico, saying they have failed to crack down on illegal migrants crossing the US border and the flow of fentanyl.

He also threatened a 10 percent duty for Chinese goods on the same day, similarly over the drug.

"The February 1st deadline that President Trump put into place at a statement several weeks ago continues," White House spokeswoman Karoline Leavitt told reporters Friday.

"Both Canada and Mexico have allowed an unprecedented invasion of illegal fentanyl that is killing American citizens, and also immigrants into our country," she added.

She did not commit to exemptions on sectors, and rejected warnings that this would spark a trade war.

Canadian Prime Minister Justin Trudeau vowed earlier Friday an "immediate response" if Trump acted, and Mexican President Claudia Sheinbaum said her government was in close contact with Trump's administration.

While Trump has not specified tools he would use, analysts have suggested he could tap emergency economic powers, which allow the president to regulate imports during a national emergency. But this could be hindered by lawsuits.

Fentanyl has been responsible for tens of thousands of overdose deaths a year.

Beijing has rebuffed claims of its complicity in the trade, while close US ally Canada has countered that below one percent of undocumented migrants and fentanyl entering the United States comes through its northern border.

Some analysts believe tariff threats are a bargaining chip to accelerate the renegotiation of the existing trade deal known as USMCA between the United States, Mexico and Canada.

"However, potentially dismantling a decades-long free-trade area could be a significant shock," said a recent JPMorgan note.

Tariffs are paid by US businesses to the government on purchases from abroad and the economic weight can fall on importers, foreign suppliers or consumers.

- Recession risks -

Assistant professor Wendong Zhang of Cornell University said Canada and Mexico would suffer the most under 25 percent US tariffs and with retaliations.

"Canada and Mexico stand to lose 3.6 percent and two percent of real GDP respectively, while the US would suffer a 0.3 percent real GDP loss," he added.

Oxford Economics analysts warned that blanket tariffs and pushback could tip Canada and Mexico into recessions, adding the United States also risks a shallow downturn.

Mexico's biggest export sectors -- food and beverages, transport equipment and electronics -- account for the bulk of its manufacturing activity, said Joan Domene, chief Latin America economist at Oxford Economics.

Canada exported nearly 80 percent of its goods to the United States in 2023, and accounts for nearly 60 percent of US crude oil imports, noted the Congressional Research Service (CRS).

It is unclear if oil imports may be exempted.

Canadian heavy oil is refined in the United States and regions dependent on it may lack a ready substitute.

Canadian producers would bear the brunt of tariffs but US refiners would also be hit with higher costs, said Tom Kloza of the Oil Price Information Service. This could bring gasoline price increases.

US merchandise imports from both countries largely enter duty free or with very low rates on average, said the Peterson Institute for International Economics.

A tariff hike would shock both industrial buyers and consumers.

- 'Grand bargain' -

Trump is also mulling more tariffs on Chinese goods.

Beijing has vowed to defend its "national interests," and a foreign ministry spokeswoman previously warned that "there are no winners in a trade war."

During election campaigning, Trump raised the idea of levies of 60 percent or higher on Chinese imports.

Isaac Boltansky of financial services firm BTIG expects "incremental tariff increases" on Chinese goods, with consumer goods likely facing lower hikes.

"Our sense is that Trump will vacillate between carrots and sticks with China, with the ultimate goal being some sort of grand bargain before the end of his term," he said in a note.

A.Ammann--VB