Background: Trump Intensifies Trade War
President Donald Trump has threatened to impose a 30% tariff on imports from Mexico and the European Union starting August 1st, following weeks of failed negotiations with key US trading partners for a global trade agreement.
In an escalation of Trump’s trade war, the new tariffs were announced in separate letters to European Commission President Ursula von der Leyen and Mexican President Claudia Sheinbaum, published on Saturday via Truth Social.
Both the EU and Mexico, among the US’s largest trading partners, responded by calling the tariffs unjust and disruptive while committing to continue negotiating a broader trade agreement before the August deadline.
Mexico’s Confident Stance
Mexican President Claudia Sheinbaum expressed confidence in reaching an agreement, stating, “I have always said that in such cases, one must remain calm to face any problem.” She emphasized Mexico’s clear understanding of what can and cannot be negotiated with the US government, including that national sovereignty is non-negotiable.
“Unfair Deal”
However, with the stock market reaching all-time highs and a robust economy, Trump shows no signs of halting his trade war.
Trump promised to close dozens of new trade deals with partners during a 90-day pause in April, but has only secured framework agreements with the UK, China, and Vietnam.
Trump’s letter to the EU demanded the elimination of its own tariffs, stating, “The European Union will allow full and open access to the US market without any tariffs being charged, in an attempt to reduce the large trade deficit.”
Von der Leyen responded that the 30% tariffs “would disrupt essential transatlantic supply chains, to the detriment of businesses, consumers, and patients on both sides of the Atlantic.”
She also mentioned that while the EU will continue working towards a trade agreement, they would take necessary measures to safeguard their interests, including adopting countermeasures if required.
Mexico Receives Lower Tariffs Than Canada
The proposed tariff level for Mexico is lower than Canada’s 35% rate, and both letters cite fentanyl flows despite government data showing significantly more of the drug seized at the Mexican border compared to the Canadian border.
“Mexico has been helping secure the border, BUT what Mexico has done is not enough. Mexico still hasn’t detained the cartels trying to turn all of North America into a narco-trafficking playground,” Trump wrote.
China is the primary source of chemicals used to manufacture fentanyl. According to US Customs and Border Protection, only 0.2% of all fentanyl seized in the US comes from the Canadian border, while most originates from the southern border.
Mexico exports over 80% of its total goods to the US, and free trade with its northern neighbor has made Mexico the US’s top trading partner over China in 2023.
Initially, the EU expected to reach a global trade agreement, but more recently has scaled back its ambitions and opted for a broader framework agreement similar to the UK’s, leaving key details to be negotiated.
The 27-nation bloc faces conflicting pressures, with Germany pushing for a quick agreement to protect its industry while other members like France insist that EU negotiators should not concede to a unilateral US agreement.
EU’s Potential Countermeasures
Bernd Lange, head of the European Parliament’s Trade Committee, stated that Brussels should enact countermeasures as soon as Monday. “This is not the way to treat a key trading partner,” Lange told Reuters.
Jacob Funk Kirkegaard, a Bruegel group member based in Brussels, said Trump’s letter increases the risk of EU retaliation similar to those between the US and China, which shook financial markets.
“US and Chinese tariffs went up together and then came down. They didn’t fully come down, but they moved in tandem,” Kirkegaard said.
Financial Impact and Security Tensions
Trump’s series of tariff orders since returning to the White House has started generating tens of billions of dollars monthly in new revenue for the US government. Federal fiscal year tariff revenues surpassed $100 billion by June, according to US Treasury data on Friday.
The tariffs have also strained security relations with some of the US’s closest partners.
Japanese Prime Minister Shigeru Ishiba said last week that Japan needs to reduce its reliance on the US in key areas. The tariff struggle has also led Canada and some European allies to reassess their dependence on the US for security, with some considering non-US armament systems.
