Welcome to the 238th edition of Trade War.
What a week ~ Trump threatens tariffs on Mexico, Canada, and China on Tuesday and on the BRICS on Saturday, causing international consternation. Mexican president Claudia Sheinbaum calls the US president-elect to explain her country’s border control efforts, while her ministry launches a crackdown on smuggled imports, including from China. And Canada’s Justin Trudeau makes an originally unscheduled flight to Mar-a-Lago for dinner with Trump.
Xi Jinping stops in Morocco on way home from G20 in Brazil, checking on a new link in China’s electric vehicle supply chain. BYD demands its suppliers cut costs, a sign of the cutthroat competition in the Chinese EV market. And Uniqlo executive nervously announces his company doesn’t use Xinjiang cotton.
Manufacturing shows hint of recovery. China’s economy “gradually gaining momentum” with “positive trends” to continue, concludes Beijing. But S&P Global predicts a tariff-spurred downturn and reduces 2025 and 2026 growth projections to 4.1% and 3.8%, down 0.2 and 0.7 percentage points from before.
Notable/In depth ~
Tariffs may not offset China auto market competitiveness
Chinese companies step up poaching of top engineers
Leaders set ‘psychological’ targets for China’s stock markets, say former top securities official
Trump threatens Mexico, Canada, and China with tariffs
On Tuesday, Trump took to his social media platform to threaten tariffs on three of the top trading partners of the U.S., two of which are close allies and neighbors.
Writing on Truth Social, the president-elect said he would impose 25 percent tariffs on Mexico and Canada, affecting “ALL products,” and put a ten percent levy on imports from China—incidentally, much lower than the 60 percent he has been threatening throughout his campaign.
All three countries’ supposed sin: not doing enough to stop the flow of drugs and people into America.
“As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before,” Trump said. “This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”
Tariffs on the U.S.’ two neighbors would have a huge impact on the auto industry as well as on food, major sectors for trading between the three countries. Mexico which became the largest trading partner of the U.S. in recent years supplanting China, also exports electronics and plastics to its neighbor north of the border. Canada is the largest exporter of oil and gas to the U.S.
A 25 percent tariff is “not a real conversation,” says Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, a Canadian industry group. “The president-elect has done what he’s famous for, which is try to stir the debate.”
“Fentanyl is an issue for the U.S. In the spirit of humanity, China has given support to the U.S’s response to this issue,” China’s foreign ministry responded in a statement to Trump’s threat. “China has carried out extensive and in-depth counternarcotics cooperation with the US, which has been highly productive. This is a clear fact for all to see.”
100% tariffs on BRICS for promoting de-dollarization
Turning to Truth Social again four days later, Trump threatened on Saturday to impose 100 percent tariffs on the BRICS nations if they move away from using the U.S. dollar as their reserve currency.
The BRICS, initially a grouping including Brazil, Russia, India, China and South Africa and now expanded to include Ethiopia, Iran, Egypt, and the United Arab Emirates, “can go find another ‘sucker!’,” Trump wrote. “There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”
“We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100 percent Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
According to the IMF, the dollar makes up about 58 percent of global foreign exchange reserves, with major commodities like oil still mainly bought and sold using the USD.
The BRICS, however, have been calling for de-dollarization, or more reliance on other currencies for trading, an effort that has gathered steam since sanctions were levied on Russia for its invasion of Ukraine.
Trump is back in flailing form on social media, lashing out with accusations—founded, unfounded, wild and reasonable—and threats, some that may prove real, many of which will likely never amount to anything. Trump calls it is his secret weapon of unpredictability, that keeps other countries off guard; others see it as a sign of mental instability. Either way, get used to it—it’s sure to be a feature of the next four years, with tariffs to play a starring role.
Mexico cracks down on smuggled Chinese goods
Following Trump’s threat of tariffs, Mexico’s Economy Ministry has announced it will carry out a “cleaning” operation to curb the flow of smuggled goods into Mexico, particularly from China, which some believe are ending up in U.S. markets.
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