With President-elect Donald Trump set to return to the White House later this month, there has been a fair amount of attention focused on his plans regarding tariffs, a key cornerstone of his economic agenda.
As reported in LM, in posts made on his Truth Social platform in late November, Trump said that, effective January 20, when he takes office, that he will sign an Executive Order, calling for a 25% tariff on all U.S.-bound imports from Canada and Mexico, as well as an additional 10% tariff on all U.S.-bound imports from China.
Regarding tariffs placed on Canada, a December Bloomberg report stated that Prime Minister Justin Trudeau noted that should the U.S. impose new tariffs on U.S.-bound Canadian imports, Canada will respond with retaliatory tariffs, as it did in 2018, following tariffs placed on Canadian steel and aluminum, a move called successful by Trudeau in the report.
“Let’s not kid ourselves in any way, shape or form: 25% tariffs on everything going to the United States would be devastating for the Canadian economy,” said Trudeau in the report, adding that the tariffs would also raise costs on a wide range of goods the U.S. gets from Canada. He also noted that Canada will “respond to unfair tariffs in a number of ways, and we’re still looking at the right ways to respond, but our responses to the unfair steel and aluminum tariffs were what ended up lifting those tariffs last time.”
John Lash, group VP of product strategy for connected supply chain platform services provider e2open, observed that the motivation for the recently-proposed 25% tariff on Canada and Mexico is different than it was when Trump rolled out tariffs in his previous term as President.
“This time, it is not about protecting an industry against unfair trade practices; the stated objective is political pressure to reduce immigration and narcotics flows into the U.S.,” said Lash. “Furthermore, it applies to all imported goods, not just lumber. While the intent this time is different, the outcome is similar. Higher tariffs translate into higher costs on imports. It’s important to remember that Canada supplies about 24% of U.S. lumber. A 25% tariff on these imports translates to roughly $35 billion, or an additional $15 billion from the current rate. An additional cost that U.S. businesses and consumers will have to absorb.”
And tariffs imposed by one country often can spark retaliation, which can escalate into larger trade wars, noted Lash—especially when the perceived motive for tariffs is to apply political pressure.
“Fears of trade wars create uncertainty in global markets and lead to higher borrowing costs to continue to fund the U.S. Government,” said Lash. “Mortgage rates are tied to the 10-year Treasury rate, so an increase in Treasury rates means higher mortgage rates for home buyers, making shelter even more expensive (and, in turn, putting pressure on interest rates).”
As for how businesses may overstock in anticipation of tariffs to lock in lower prices before costs rise, Lash, using lumber as an example, explained that while there is some pre-positioning and stocking of lumber to hedge against tariffs in 2025, it is not material. The reason for that, he said, is that it is not clear whether tariff threats by the incoming administration are all real, all negotiation, or a little bit of both, leaving people in what he called a wait and see mode, rather than making big bets on things like pre-purchasing long-term lumber supplies—which he called a risky venture.
What’s more, the possibility of new and increased tariffs comes at a time when the United States Mexico Canada Agreement (USMCA) remains intact.
And, according to Chris Rogers, Head of Supply Chain Research for S&P Global Market Intelligence, the motivation for Trump’s suggestion of increasing tariffs could be based on him wanting an early renegotiation of USMCA, which expires on July 1, 2026.
“What you do is you say, ‘if you don’t come to the table, then we will apply tariffs,” said Rogers. “If we’re at the table, we won’t apply tariffs. So, the complexity there is obviously what happens in Canada with Prime Minister Trudeau being in a somewhat weakened position. That kind of leads you to think if the trade deal is renegotiated, and if Trump gets what he wants on immigration, then [Canada] is the most likely to be left out. Everyone else is going to have to come, cap in hand and ask for something. Ironically, they’re kind of a victim of the deal’s success, because the renegotiated USMCA gave companies the confidence to relocate their manufacturing or their sourcing out of China and into Mexico, which means China’s trade surplus with the U.S. went down, but Mexico’s has gone up. Trump doesn’t like trade deficits, so he could look at the numbers and say, ‘Hang on a minute. There’s more unfair trade with Mexico and Canada than there was when I was in office.”
Rogers added that, to a certain extent, there’s not much point in trying to guess what President-elect Trump is going to do precisely, because that can be very dynamic. What shippers really need to focus on is what can companies do in the situation of different outcomes and their playbooks and think about things like how far forward do they want to pull inventory and to what extent do they want to redirect their sourcing rather than just putting prices up.
