The Trump tariff dance starts early
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Illustration: Sarah Grillo/Axios
President-elect Trump's inauguration is nearly two months away, but he's getting an early start in bringing a more uncertain time to global economic relations.
Why it matters: Trump's announcement on social media Monday night that he will slap a 25% tariff on all Canadian and Mexican imports on the first day of his term was both a warning about the direction trade policy will take and a reminder of the perils of taking his words too literally.
- Both the market reaction and response from the Canadian government reflected a view that Trump's Truth Social post was but a first step in negotiations — one that could ultimately yield something less damaging to global commerce.
- Traders and diplomats alike have learned from Trump's previous four years in the White House the value of taking a deep breath, and waiting for details and negotiation, before overreacting to social media blasts.
Driving the news: The S&P 500 closed up 0.6% Tuesday. While Canadian and Mexican stocks were down, the drops were hardly of the scale you might expect if you thought there was about to be a deep freeze on trade within North America.
- The Canadian market was down 0.3% by mid-afternoon, and Mexican stocks down 0.4%, per S&P's indexes.
- There was a bigger reaction in some individual listings. General Motors, which is heavily reliant on a supply chain that crisscrosses the U.S.'s northern and southern borders, saw its shares fall 9%.
- Both the Mexican peso and Canadian dollar weakened as well.
What they're saying: Canadian prime minister Justin Trudeau — a seasoned veteran of trade battles with Trump — spoke with the president-elect Tuesday and hardly expressed hair-on-fire alarmism afterward.
- "We talked about some of the challenges that we can work on together," Trudeau told reporters, according to Bloomberg. "It was a good call."
- "This is something that we can do — laying out the facts, moving forward in constructive ways," he added.
"The best path is dialogue," Mexican president Claudia Sheinbaum said in a news conference.
- She warned — with a firmer tone than Trudeau — that "any tariffs imposed by one side would likely prompt retaliatory tariffs, leading to risks for joint enterprises."
Between the lines: What the market and diplomatic responses have in common is that they assume Trump is staking out an aggressive position that will either not be implemented, or ratcheted back after negotiations that allow Trump to declare victory.
- In his previous term, threats to rip up the North American Free Trade Agreement led to protracted negotiations over what became the USMCA agreement, which was more revision of Nafta than wholesale rejection.
Yes, but: It is unknown how closely the Trump 2.0 tariff playbook will resemble that of his first term, as he staffs his administration with officials more personally loyal than last time — and who include many true believers in the strategic value of taxing imports.
