Inauguration Day or New Tariff Day?

At a Glance

• President-elect Trump announced that he intends to implement 25% tariffs on Canada and Mexico and 10% tariffs on China on day one of his new administration.
• Despite membership in the USMCA, the president-elect likely has legal authority to impose these tariffs through the International Emergency Economic Powers Act of 1977 (IEEPA).
• Reactions from China, Canada and Mexico have all stressed that negotiation will be important, but Mexico and Canada specifically cited retaliatory tariffs in response.

On Monday, November 25, 2024, President-elect Trump revisited a common practice from his first presidency — announcing trade policy via social media. The president-elect announced on Truth Social that, on day one of this new administration, he will implement 25% tariffs on Canada and Mexico and 10% tariffs on China “until such time as drugs, in particular Fentanyl, and all illegal aliens stop this invasion of our country!”

U.S. importers should start evaluating their supply chains in these three countries as the president-elect has broad authority to implement tariffs with immediate effect via executive action as soon as he is sworn into office.

At present, there is no indication as to whether an exclusion process will be available for these tariffs, and Trump has not indicated any sector specific limitations. We will continue to provide updates as they are released by the president-elect or his team.

The President-elect’s Ability to Impose Tariffs

The president-elect will have a variety of legal avenues to initiate tariff increases even against countries with whom we have a free trade agreement, such as the United States-Mexico-Canada Agreement (USMCA). President-elect Trump is most likely to implement the proposed tariffs based on his authority under the International Emergency Economic Powers Act of 1977 (IEEPA). While this statute has never previously been utilized to implement tariffs, the prior Trump administration threatened to use IEEPA during his first administration to impose tariffs on Mexico. Moreover, the legal basis for implementing tariffs under IEEPA would allow for immediate effect.  

The president-elect’s previous threats of tariffs under IEEPA led to a negotiation and agreement between the two countries in which Mexico pledged to take action to stem the flow of undocumented immigrants traveling from Central America to the United States in exchange for the United States holding off on imposing escalating tariffs on all imports from Mexico. Thus, the president-elect likely sees this announcement as a bargaining chip for future negotiations on these issues. 

Reactions From Canada, Mexico and China

The governments of Canada, Mexico and China all responded to the announcement by showing that they are taking the president-elect’s threats seriously.

Canadian Prime Minister Justin Trudeau said he will soon hold a meeting with Canadian government officials to discuss a path forward, stressing that “[t]his is a relationship, [between Canada and the United States,] that we know takes a certain amount of working on, and that’s what we’ll do.” According to Prime Minister Trudeau, he and the president-elect spoke over the phone shortly after the announcement and had a “good conversation” that covered trade and border security.

In Mexico, President Claudia Sheinbaum responded by suggesting that Mexico would impose reciprocal tariffs, stating in a letter that she intends to send to Trump: “One tariff will be followed by another in response, and so on until we put common businesses at risk.” In the letter, President Sheinbaum cited the potential impact on U.S. automakers, adding: “Why impose a tax that puts [U.S. automakers] at risk? It is not acceptable and would cause inflation and job losses in the United States and Mexico.”

Liu Pengyu, a spokesperson for the Chinese embassy in Washington, D.C., said: “No one will win a trade war or a tariff war” and “the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality.”

Future of the USMCA

During his first administration, the president-elect’s relationship with trade policies involving Mexico and Canada was most famously marked by the renegotiation of the North American Free Trade Agreement (NAFTA) into the USMCA in 2020. While the USMCA represented a modernized framework aimed at addressing issues like digital trade, labor rights and agricultural exports, the president-elect’s recent rhetoric on trade policy with Mexico and Canada has emphasized that our trading partners should not be allowed to take advantage of the U.S. under the current framework. He has also suggested that the tariff system would be a critical leverage point to ensure these countries honor fair trade practices. 

While various provisions within the USMCA may allow for tariff increases — such as those described by the president-elect via Truth Social — and they clearly fall within the president elect’s domestic authority, the suggestion of such broad tariffs appear to violate the spirit of the agreement.

In regard to the USMCA, the future remains unknown. In 2026, the USMCA is up for joint review, and if this review is not commenced, the free trade agreement will expire in 2036. The incoming Trump administration has made no mention of the upcoming review, but Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau have stressed the importance of working together since the pledged tariff increases were announced. All that said, any member of the USMCA is free to withdraw six months after written notice has been provided to all parties. 

For More Information

Our team strives to keep businesses up to date on the ever-evolving trade sector. For more information on these developments, please contact the authors or your regular Faegre Drinker contact.