President Donald Trump has pulled the trigger on tariffs against Mexico, Canada and China to incentivize cooperation to stop the flow of both illegal immigrants and fentanyl drug trafficking crossing the U.S. border and has said he will only lift them when trade is rebalanced and the human and drug trafficking stops.
The tariffs, issued by Trump on Feb. 1, include 25 percent tariffs for Canadian goods, and also 10 percent tariff on energy products including “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals”, and 25 percent tariff on Mexican goods, and to increase the tariffs on Chinese goods by another 10 percent, coming atop 25 percent on $250 billion of goods and 17.5 percent on the remaining $300 billion of goods that were established by Trump in 2019 that President Joe Biden never rescinded.
The U.S. has balance of trade deficits with all three countries. In 2024, in China it was roughly $290 billion, in Canada it was $60 billion and in Mexico it was $170 billion, according to data compiled by the U.S. Census Bureau.
In a negotiation over trade, the combined $520 billion of trade deficits could give President Trump the leverage he needs over the trade surplus countries who depend on the U.S. as a customer for their goods. It comes down to who has more to lose?
Already, Mexico has come to the table to negotiate as Trump put a one-month pause on the tariffs there after Mexico said it would immediately provide 10,000 troops to help secure the U.S-Mexican border.
When asked by reporters on Feb. 2 what it might take to lower the tariffs, Trump reiterated he is seeking cooperation with all three countries on balance of trade, the border and drug trafficking, stating, “They have to balance out their trade, number one. They’ve got to stop people from pouring into our country — and we’ve stopped it, they haven’t stopped it, we’ve stopped it. They have to stop people from pouring in and we have to stop Fentanyl and that includes China.”
Trump added, warning that he will increase the tariffs if cooperation is not reached, saying, “Fentanyl has killed this year at least 200,000 people. It’s pouring in from China through Mexico and Canada and they’ve got to stop it and if they don’t stop it the tariffs are going to get worse, a lot worse.”
In each of the tariff executive orders by Trump, it warns should any of the counties “retaliate against the United States in response to this action through import duties on United States exports… or similar measures, the President may increase or expand in scope the duties imposed under this Executive Order to ensure the efficacy of this action.”
Well, that’s already happening. Canada has promised a 25 percent tariff in return, with Mexico expected to follow suit. And Mexico, Canada and China’s currencies were immediately weakened — down 2.2 percent, 1.9 percent and 0.4 percent respectively — likely by dumping domestic currency to buy dollar denominated assets, thereby strengthening the dollar, in an apparent bid to cheapen exports to the U.S. and offset the tariffs.
None of this should come as little surprise to anyone. After winning the election, in a post on Truth Social on Nov. 26, Trump levied the tariff threat against China, writing, “I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail. Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our Country, mostly through Mexico, at levels never seen before. Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.”
And in a separate post, Trump also warned Mexico and Canada of the same, writing, “As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before. Right now a Caravan coming from Mexico, composed of thousands of people, seems to be unstoppable in its quest to come through our currently Open Border. On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders. This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country! Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
And as for immediate actions to weaken their currencies by Mexico, Canada and China besides tariffs, with the dollar as the world’s reserve currency, intervention into currency markets has been a go-to measure by foreign central banks to achieve trade surpluses for decades. Usually, the U.S. wouldn’t do anything in response, but now Trump is getting tough.
As a result the dollar has already strengthened the dollar by 1.3 percent, which will have the impact of making U.S. exports more expensive in receiving countries, and could prompt Trump and the new Treasury Secretary Scott Bessent to look at currency manipulation, something Trump has warned about repeatedly.
While the tariff threats had prompted discussions with all three countries’ leaders prior to taking office, Trump was apparently not satisfied with the progress, telling reporters, “we subsidize Canada by the tune of about $200 billion dollar a year and for what? What do we get out of it? We don’t get anything out of it. I love the people of Canada. I disagree with the leadership of Canada and something’s going to happen there but if they want to play the game, I don’t mind, we can play the game all they want.”
Trump added, “Mexico, we’ve had very good talks with them and… this is retaliatory to a certain extent. Millions of people float into our country through Mexico and Canada and we’re not going to allow that.”
And it might extend to other countries including the European Union and the United Kingdom, Trump warned. He also told the American people to expect “pain”, stating, “we may have short term some — a little pain, and people understand that, but long term the United States has been ripped off by virtually every country in the world. We have deficits with almost every country not every country but almost and we’re going to change it, it’s been unfair.”
So, Trump’s art of the deal continues. No longer a threat, Trump has imposed the reality of tariffs on Mexico and Canada, and as for China, he has increased those already in place. Mexico is coming to terms and now the ball is in Canada and Mexico’s court. Trump isn’t messing around.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.
