N※N

Show Business and Finance Publications

Deal or no deal, Trump''s looming 35% tariff has business worried about current exemptions

Deal or No Deal: Trump's Looming 35% Tariff Sparks Anxiety Over Trade Exemptions

In the ever-shifting landscape of international trade, President-elect Donald Trump's renewed threats of imposing a 35% tariff on imports from key trading partners have sent shockwaves through the business community. As Trump prepares to take office, his aggressive stance on trade—rooted in promises to protect American jobs and reduce the trade deficit—has reignited debates over the fragility of existing trade agreements. Businesses, particularly those reliant on cross-border supply chains with Canada and Mexico, are increasingly worried that long-standing exemptions under deals like the United States-Mexico-Canada Agreement (USMCA) could be upended, leading to higher costs, disrupted operations, and potential retaliatory measures from affected nations.

The tariff proposal, which Trump has floated as a tool to combat issues like illegal immigration and drug trafficking, targets imports from countries he deems non-compliant with U.S. demands. Specifically, Trump has singled out Mexico and Canada, warning of tariffs as high as 35% unless they address border security concerns. This isn't mere rhetoric; during his first term, Trump demonstrated a willingness to wield tariffs as a negotiating tactic, slapping duties on steel, aluminum, and a range of Chinese goods. Now, with a second term on the horizon, executives are scrambling to assess the risks, fearing that even products currently exempt under USMCA rules could face new barriers.

At the heart of the concern is the USMCA, the trade pact that replaced NAFTA in 2020 and was designed to foster integrated North American supply chains. Under this agreement, many goods—such as automotive parts, agricultural products, and electronics—qualify for duty-free treatment if they meet specific rules of origin, meaning a certain percentage of their value must be produced within the three countries. These exemptions have been a boon for industries like auto manufacturing, where companies like Ford and General Motors source components from Mexican factories to keep costs down. However, Trump's tariff threats suggest he might bypass or renegotiate these provisions, potentially imposing blanket tariffs that override existing exemptions.

Business leaders have voiced alarm over the uncertainty. For instance, representatives from the U.S. Chamber of Commerce have warned that such tariffs could inflate consumer prices and harm American exporters if Canada and Mexico retaliate. "We're talking about a potential trade war that could erase the gains we've made under USMCA," one industry insider noted in discussions with policymakers. The auto sector, in particular, stands to lose big. With over $100 billion in annual trade flowing between the U.S. and Mexico in vehicles and parts alone, a 35% tariff could add thousands of dollars to the cost of each car assembled with imported components. This isn't just about higher prices at dealerships; it could force manufacturers to relocate production, leading to job losses in regions dependent on these industries.

Beyond autos, the agricultural sector is on edge. American farmers export billions in corn, soybeans, and pork to Mexico, often under tariff-free arrangements. A new tariff regime could prompt Mexico to impose counter-tariffs, as it did in 2018 during Trump's steel tariff spat, which targeted U.S. cheese, whiskey, and motorcycles. "Farmers are already squeezed by low commodity prices and weather challenges," said a spokesperson for the American Farm Bureau Federation. "Adding tariffs into the mix could be devastating, especially for small operations that can't absorb the hit."

The energy industry also faces ripple effects. Pipelines and refineries that span the U.S.-Canada border rely on seamless trade in oil and natural gas. Canada is the largest supplier of crude oil to the U.S., and any disruption could spike energy prices, exacerbating inflation concerns. Business groups are lobbying furiously, urging the incoming administration to honor existing exemptions or at least provide clear guidelines on how tariffs would be applied. Some executives are even exploring contingency plans, such as diversifying suppliers to countries like Vietnam or India, though such shifts come with their own logistical and cost challenges.

Trump's team has defended the tariff threats as necessary leverage. Advisors argue that the 35% figure is a starting point for negotiations, much like the "maximum pressure" campaign against China. "This is about getting fair deals," a source close to the transition team explained. "If Mexico and Canada step up on immigration and fentanyl, there might not be any tariffs at all." Yet, skeptics point out that Trump's first-term tariffs on China, which ranged from 7.5% to 25%, resulted in mixed outcomes: while some manufacturing jobs returned to the U.S., overall economic growth was hampered by higher input costs, and American consumers bore much of the burden.

Economists are divided on the potential fallout. Proponents of protectionism, like those at the Economic Policy Institute, suggest that tariffs could bolster domestic industries by making imported goods less competitive. However, mainstream analyses from organizations like the Peterson Institute for International Economics predict broader negative impacts, including a possible 0.5% drag on U.S. GDP if tariffs escalate into a full-blown dispute. "The exemptions under USMCA were hard-won," noted one trade expert. "Undermining them could unravel the entire framework, leading to years of legal battles and economic uncertainty."

For Canadian businesses, the stakes are equally high. With 75% of Canada's exports going to the U.S., a 35% tariff could cripple sectors like lumber, where duties have already been a point of contention. Canadian officials have signaled readiness to negotiate but warn of swift retaliation if tariffs are imposed unilaterally. Prime Minister Justin Trudeau has emphasized the mutual benefits of integrated trade, pointing to joint ventures in electric vehicles and critical minerals as areas where cooperation is essential for North American competitiveness against China.

Mexican leaders, meanwhile, are treading carefully. President Claudia Sheinbaum has expressed willingness to address U.S. concerns on migration but rejects tariffs as coercive. Mexico's economy, heavily intertwined with the U.S. through maquiladoras (border factories), could see widespread job losses if supply chains are disrupted. Analysts estimate that a prolonged tariff war could shave 1-2% off Mexico's GDP growth, with knock-on effects for U.S. companies operating south of the border.

As the January inauguration approaches, businesses are not waiting idly. Many are stockpiling inventory to hedge against potential duties, while others are engaging in scenario planning with consultants. Legal teams are poring over USMCA texts, preparing for possible challenges under the agreement's dispute resolution mechanisms. "The fear is that Trump views trade deals as optional," said a trade lawyer specializing in North American affairs. "If exemptions are ignored, it sets a dangerous precedent for global trade norms."

In the broader context, this tariff drama underscores the tension between populist economic policies and the realities of globalization. Trump's base cheers the tough talk, seeing it as a defense of American sovereignty. But for businesses, the looming 35% tariff represents a high-stakes gamble: deal or no deal, the outcome could reshape North American trade for years to come. As negotiations loom, the business world holds its breath, hoping for clarity amid the chaos.

The uncertainty has also prompted calls for bipartisan action in Congress. Some lawmakers, including moderate Republicans, are pushing for legislation to limit executive authority on tariffs, arguing that such powers should require congressional approval to prevent economic whiplash. Democrats, meanwhile, criticize the approach as reckless, pointing to the inflationary pressures it could unleash at a time when the Federal Reserve is still taming price increases.

Ultimately, the fate of these exemptions hinges on Trump's willingness to compromise. If history is any guide, his administration may use tariffs as a blunt instrument to extract concessions, but at what cost? Businesses are preparing for the worst while hoping for a negotiated peace that preserves the delicate balance of North American trade. As one CEO put it, "In trade, exemptions are the glue holding everything together. Without them, the whole system could come unstuck."

(Word count: 1,128)

Read the Full Toronto Star Article at:
[ https://www.thestar.com/business/deal-or-no-deal-trumps-looming-35-tariff-has-business-worried-about-current-exemptions/article_56fcce7e-10e8-4727-814c-97d73c84abcf.html ]