WASHINGTON: Officials from Mexico, Canada and China and major industry groups warned that US President-elect Donald Trump’s threat of hefty tariffs on goods would harm the economies of all involved, cause inflation to spike and damage job markets. Trump’s pledge announced on Monday roiled currency, bond and equity markets on Tuesday, as the three countries are the United States’ largest trading partners. Mexico and Canada are particularly intertwined in US auto production and energy output thanks to decades of trade agreements between the North American neighbors.

Trump’s plan to impose a 25 percent tariff on Canadian and Mexican imports on his first day in office does not exempt crude oil as industry executives had hoped, two sources familiar with the plan told Reuters on Tuesday. Leaders and other top officials warned a trade war could erupt and economies be damaged, and sought talks with Trump after the surprise announcement, which includes an extra 10 percent levy on Chinese goods - until the three countries clamp down on the flow of illicit drugs and migrant border crossings. “To one tariff will follow another in response and so on, until we put our common businesses at risk,” Mexican President Claudia Sheinbaum said during a regular press conference. Sheinbaum said she planned to send a letter to Trump and would seek a call with him to discuss the issue.

A Bank of Canada official said any move by Trump to deliver on the threat would reverberate on both sides of the US northern border. “What happens in the US has a big impact on us, and something like this would clearly have an impact on both economies,” Deputy Governor Rhys Mendes told audience members at an event in Charlottetown, Prince Edward Island.

Earlier, a spokesperson for China’s embassy in Washington said: “No one will win a trade war or a tariff war.” The three countries shipped a total of more than $1 trillion of goods to the United States in the first nine months of the year, led by Mexico and followed by China and then Canada, according to US Commerce Department data as of September. Tariffs are paid by the companies that import goods and often passed to consumers, even though Trump frequently erroneously states that tariffs would be imposed on the foreign nations in question. “The folly here is that such tariffs will, in the end, boomerang back to the US in the form of higher inflation and rising interest rates,” said Bernard Baumohl, chief global economist for the Economic Outlook Group. Trump “will undo the singular pledge he gave to Americans during the campaign, which is to bring the cost of living down.”

If Trump follows through on the tariff plans, consumers may face higher prices for avocados, strawberries and other fresh produce, as well as meat, agricultural economists and industry executives said. Mexico and Canada are by far the top two suppliers of farm products to the United States, with imports of agricultural goods valued at nearly $86 billion last year, according to US Department of Agriculture and US Customs data. 

The threatened levies would appear to violate the terms of the US-Mexico-Canada Agreement (USMCA) on trade. The deal, which Trump signed into law, took effect in 2020 and continued the largely duty-free trade between the three North American countries; the deal sunsets in 2026.

Warren Maruyama, former general counsel for the US Trade Representative under President George HW Bush, said Trump could declare a national emergency, which would unlock the International Emergency Economic Powers Act and allow him to impose the tariffs with relative ease. — Reuters