As US President Donald Trump considers imposing a 25% tariff on imports from Canada and Mexico, policymakers, economists, and industry leaders are focusing on the sectors that would be most significantly impacted by such a decision.
These prospective duties, set to be discussed on February 1, 2024, fall under the category of trade imbalances, which have long been a source of contention in the North American trading relationship.
The decision to adjust tariff policy comes when the two countries account for around 28% of total US imports, totalling $844 billion.
As a result, the proposed tariffs will be quite large and broad in scope.
When it comes to industries impacted by tariffs, the automobile sector is at the top of the list, casting a long shadow over the tariff issue.
Automotive industry: the main target of tariffs
With anticipated imports from Canada and Mexico totalling more than $202 billion, the automotive industry, a cornerstone of both the US and North American economies, is one of the major segments prepared to suffer the consequences of increased tariffs.
This industry is especially vulnerable to tariff swings due to its sophisticated and often convoluted supply chains, which frequently span numerous nations and rely heavily on cross-border commerce.
Jason Miller, interim chair of Michigan State University’s Department of Supply Chain Management, said to Reuters that the introduction of such tariffs may “unintentionally provide competitive benefits to Japanese automakers such as Toyota”.
“Because many of the components used in these manufacturers’ vehicles are derived from Japan or the United States, they may do better than their North American peers, who rely significantly on imports from Canada and Mexico”, said Miller.
Miller’s insights point to a potential shift in the automotive market’s competitive structure.
As the costs of vehicles imported from Canada and Mexico rise due to tariffs, buyers may begin to shift their preferences toward vehicles built by companies that rely less on these specific supply lines.
This shift in customer behaviour could strengthen Japanese automakers’ market position, allowing them to acquire a larger market share throughout the turmoil.
A closer look at US imports from Canada and Mexico
To fully understand what is at stake with the proposed tariffs, we need to take a closer look at Canada and Mexico’s top imports.
According to a Reuters report, the following sectors may be most affected by the new tariffs:
Automobile & light duty motor vehicle manufacturing: $102.21 billion (45% of the United States imports of this product)
Crude oil: $101.45 billion (66%)
Electronic computers: $38.99 billion (37%).
Other auto parts: $28.28 billion (60%)
Goods returned (Exports to Canada Only): $23.28 billion (26%).
Heavy-duty trucks and chassis: $18.68 billion (93%)
Oil refinery products: $17.67 billion (31%).
Motor vehicle electrical and electronic equipment, NESOI: $14.42 billion (58%).
Audio and video equipment: $13.03 billion (36%).
Nonferrous metals (excluding aluminium): $12.79 billion.
These data emphasize the critical interdependence that exists in commerce between the United States and its North American neighbours.
Notably, crude oil and automobile parts account for a sizable portion of total imports, making these industries particularly vulnerable to price hikes caused by new tariffs.
Economic implications: winners and losers
If the planned tariffs are enforced, the economic consequences will undoubtedly be felt throughout the economy.
Workers in the automobile industry may confront the harsh reality of job losses as firms are forced to restructure their operations in reaction to the unavoidable rise in prices connected with imported goods.
On the other hand, industries that strategically purchase components from the United States or Japan may see a significant increase in demand as manufacturers and consumers seek alternatives to Canadian and Mexican supply.
Furthermore, consumers may face a wide range of consequences since the rising costs of imported goods possibly lead to higher retail prices, particularly in the automotive market and other sectors as well.
This transformation may diminish consumer purchasing power, resulting in a potential decline in sales across many markets, and exacerbating existing economic issues.
Debate over tariffs raises concerns
As the important February 1 deadline approaches, the ongoing debate over proposed tariffs raises a slew of critical concerns about trade strategy, economic ramifications, and market dynamics.
With Canadian and Mexican imports accounting for such a big share of US economic activity, the stakes are extremely high.
Stakeholders across a wide range of industries, from automotive to energy, are bracing for potential disruptions while also planning possible modifications to offset the negative effects.
The eventual tariff ruling, and its far-reaching consequences, could set the tone for the United States’ trade relations with its nearest neighbours for years to come, potentially changing the landscape of North American trade and economic cooperation in unprecedented ways.
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