US Vs China, Canada, Mexico Trade War Begins. What Impact Will It Have?

Who is the US involved in a trade war with?

The United States is engaged in a trade war with several countries, including China, Canada, and Mexico. The trade war between the United States and China began in 2018 when U.S. President Donald Trump imposed tariffs on Chinese goods worth 34 billion U.S. dollars. China then retaliated with similar tariffs on U.S. products.

This time, the White House announced the imposition of high tariffs on imports from Mexico, Canada, and China on February 1, 2025. Canada and Mexico were subjected to import duties of up to 25 percent. China received an additional 10 percent tariff on top of the tariffs already previously applied.

The import tariffs apply, except for energy products originating from Canada, such as oil, natural gas, and electricity. Energy from Canada is subject to a lower import duty, namely 10 percent. The new tariffs will take effect starting February 4, 2025. Trump invoked the International Emergency Economic Powers Act in imposing these tariffs.

Trump has repeatedly hinted at import tariffs as his main policy. For him, tariffs can boost economic growth, protect jobs, and increase U.S. tax revenue. The U.S. has recorded trade deficits with many countries, including Mexico, Canada, and China.

However, Trump also has another reason. The imposition of tariffs aims to pressure the three countries to address the flow of illegal immigrants and fentanyl-type narcotics, as well as their precursor chemicals, into the U.S.

Who benefits and who loses in this trade war?

Many analysts predict that the negative effects of this trade war will be more significant for the U.S. economy compared to its benefits. Not only will it make the market more vulnerable, but the prices of daily necessities are also believed to rise. Ultimately, the welfare of citizens will be eroded amidst stagnant income levels.

Canadian Prime Minister Justin Trudeau described Trump's decision as a foolish act that would backfire. Canada responded to Trump's policy by imposing a 25 percent tariff on imported U.S. products worth 20.7 billion U.S. dollars. The affected products include orange juice, peanut butter, wine, alcoholic beverages, beer, coffee, and motorcycles.

Trudeau also said he would impose additional tariffs on more than $100 billion worth of US imports if Trump persists in imposing additional tariffs over the next 21 days.

The US goods that will be subject to tariffs include motor vehicles, steel, aircraft, beef and pork. Canada will also oppose the US tariffs under WTO rules and the US-Mexico-Canada free trade agreement.

Trump's policy is also considered insufficient to encourage the return of the manufacturing industry in the US. Price increases will also be felt in the automotive sector, especially since it is not easy for entrepreneurs to move their production facilities from one country to another.

What impact will this trade war have on world economic growth and trade?

The US stock exchange and several countries reacted negatively to the certainty of the trade war. The New York Stock Exchange turned red, other countries' stock exchanges also corrected. The trade war has caused prices of various things to rise so that consumption is feared to decline.

The decline in consumption can also cut sales of various producers and distributors. As a result, their income is eroded. On the stock exchange, the correction in income is what makes expectations of dividend values decrease. As a result, stock prices are also corrected.

Trump sets a 25 percent import tariff for Canada and Mexico. China will also be hit with an additional import tariff from 10 percent to a total of 20 percent. Canada and Mexico are major trading partners bound by the North American Free Trade Agreement with the US, NAFTA. The US is primarily a market, Canada-Mexico are suppliers. With the implementation of the BMI, the agreement is practically dead so that the supply chain can be disrupted.

In response to the US, Canada immediately imposed a 25 percent import tariff on commodities worth US$20.6 billion. If the US does not show good faith, then an equivalent import tariff will be imposed on commodities worth US$86.6 billion.

China will also soon impose a 15 percent import tariff on various US agricultural and livestock products. Starting next Monday, the tariffs will apply to soybeans and various meats, including pork, beef and chicken.

China also banned cooperation with 10 US companies. All Chinese companies or those operating in China are prohibited from conducting export or import transactions with the 10 companies. In addition, there are also export restrictions to 15 US companies. China considers the 15 companies to be harmful to China's national interests.

What impact does a trade war have on people's lives in the countries involved?

The US trade war will have an impact on the increase in the price of goods imported from the countries involved, thus affecting people's purchasing power. The increase in the price of goods can cause a decrease in people's purchasing power so that they have to reduce consumption or look for cheaper alternatives.

Trade wars can also cause changes in people's consumption patterns because they have to adjust to rising prices of goods.

The consumer industry will also be affected, especially those that depend on imports of goods from the countries involved. In addition, the trade war can cause economic uncertainty so that people become more careful in consuming.

Trump said Americans would feel the “pain” of rising prices. However, it was all worth it for the ambition of reviving the domestic economy. Economists in the US predict that in the short term there will be a spike in prices of goods.

In fact, one of the reasons Trump won the November 2024 presidential election was because the American people were fed up with inflation that has caused prices to rise since the Covid-19 pandemic. In real terms, Trump's policy of raising tariffs will increase household burdens by around $1,000 per year.

How is the global economic prediction due to this trade war?

Several international financial organizations have warned that a trade war through tit-for-tat tariffs on goods between countries will make the world economy even bleaker. The International Monetary Fund (IMF) said the trade war could damage Asia's economic prospects, increase costs and disrupt supply chains.

Tariffs can hamper global trade and hinder growth in exporting countries. For the US, a tariff war could increase inflation, which could force the US Central Bank (Federal Reserve/The Fed) to tighten monetary policy.

This condition will also have a negative impact on the Asian economy. The IMF estimates that Asia will remain the main engine of global economic growth even though the global economic growth outlook is less encouraging.