With the U.S. presidential election fast approaching, Donald Trump is targeting all three of our North American partners—Mexico, China, and Canada—with tariffs. Though only a few months remain before the November 2024 election, Trump wants to bolster the U.S. economy in a big way. He intends to further support American producers through strategic tariffs. The current trade war between the U.S. and China has led to punitive import tariffs. Investors and market analysts should be especially concerned about the high 145% tariff levied on all products from China.
The clock is ticking. With the July 9 deadline for the Trump administration’s self-imposed “pause” on reciprocal tariffs coming due, grave questions loom over their course of action. Even after all of these developments, the DJIA (Dow Jones Industrial Average) increased by over 650 points. It hit a high gain of 1.6% following announcement of a partial trade agreement with the United Kingdom.
Focus on Key Trade Partners
President Trump is particularly focused on trade relations with three major partners: Mexico, China, and Canada. According to new data released by the U.S. Census Bureau, that day has finally come. Mexico has now passed China as the top exporter to the United States, exporting an estimated $466.6 billion. This fact makes Mexico one of the most important countries in U.S. trade patterns and an ideal target for the Administration’s tariff negotiating efforts.
Trump’s strategy to achieve this aim rests on the use of tariffs to protect and promote American producers. He’s stacking tariffs on imports from Mexico, China, and Canada. This action helps to ensure that production stays domestic, which is critical to maintaining a level playing field for American businesses. This focus on tariffs alone serves to highlight the sheer protectionist nature of Trump’s long-time approach towards trade, one where America is held above all else.
This creates a new opening for the administration, as Trump made clear his willingness to negotiate sectoral deals that would reduce trading tensions. Yet, on tariffs, he hardlines the steep Chinese import fees. This continued flexibility has caused great concern among those investors expecting a quick solution to the maintaining U.S.-China trade war.
Implications of the Trade War
The continuing trade war with China is hurting the communities on both sides of the state line with serious economic consequences. The U.S. is currently enforcing a punitive 145% tariff on nearly all imports from China. This has exacerbated supply chain challenges and increased costs for American families. The Chinese government’s deliberate step-back in trade negotiations have compounded challenges making up this perfect storm. This delay has understandably led investors to become panic-stricken over the potential for the conflict to become permanent.
In 2024, Mexico, China, and Canada were responsible for 42% of total U.S. imports. This only highlights how critical these countries have become for U.S. economic health and trade policy. Depending on the substance of the deals that the Trump administration negotiates with these countries, they could have outsized influence on the future landscape of U.S. trade for decades.
Even with new tariff-related headwinds, some market analysts continue to be bullish on the housing market. They believe that the Trump administration will successfully negotiate enough trade agreements to mitigate the damage caused by high import taxes. Recent price action in the markets is a strong indicator of this misplaced faith. Ever since news of new trade deals came through, positive waves have infused the DJIA with surprising momentum.
The UK Trade Deal and Future Prospects
The Trump administration has been putting a lot of focus on NAFTA-related trade relations. In addition, they’ve recently concluded a preliminary trade agreement with the United Kingdom. Since the UK does not let in proscribed foods from outside Europe, under this arrangement, nearly all of them will pay a 10% tariff overall. This is a big deal. Moreover, it promises to restore relationship with our allies while addressing short-term domestic economic priorities.
Trump said that his administration hopes to have the UK trade deal “very major” in the next few weeks. There has been much eagerness on this deal. It is a reflection of the administration’s larger strategy to negotiate better trade deals with traditional allies while being hard on competitors such as China.
Indeed, negotiations with Canada and Mexico are already underway. Confusion remains over what these relationships will look like as, much to everyone’s surprise, tariff negotiations continue on. The July 9 deadline for the pause on these “reciprocal tariffs” is directly around the corner. Stakeholders are closely awaiting any announcement from the administration, as individual summaries could produce major shifts in U.S. import costs and trade patterns.