U.S. President Donald Trump has decided to postpone high tariffs on imports from Canada and Mexico. While the postponement is said to be due to the two countries' cooperation in addressing drug trafficking and illegal immigration, there are also analyses suggesting it is due to concerns over the massive damage U.S. corporations could face. In contrast, unlike Canada and Mexico, Europe has fewer production bases in the U.S., leading to predictions that tariffs may not just be a threat.
According to major foreign media including CNN on the 3rd (local time), President Trump announced on his social media that he would postpone the 25% tariff on Canada for 30 days after having two phone calls with Canadian Prime Minister Justin Trudeau. It is reported that Prime Minister Trudeau has promised to appoint a 'fentanyl czar' to deal with drug issues and invest $1.3 billion (approximately 1.9 trillion won) in border security.
On that day, President Trump also announced that he would postpone the 25% tariff on Mexico for 30 days. This decision comes after Claudia Sheinbaum, the President of Mexico, promised to deploy 10,000 soldiers to the U.S.-Mexico border to combat drugs and illegal immigration.
◇ Tariffs on Canada and Mexico are 'negotiation tools'... a blow to U.S. corporations if imposed
In the economic and financial sectors, opinions are emerging that President Trump's announcement of tariffs on Canada and Mexico was initially intended as a 'negotiation card.' This is because major manufacturing corporations from the U.S. have large production facilities in both countries; if a 25% tariff were imposed, the U.S. economy would suffer significantly. Many U.S. corporations established production bases in Mexico due to lower labor and factory construction costs following the signing of the United States-Mexico-Canada Agreement (USMCA) in 2020.
In 2023, the total number of vehicles exported from Mexico to the United States was 2,554,000. Of this, the amount produced by the three major U.S. automobile groups—General Motors (GM), Ford, and Stellantis—accounted for more than half, totaling 1,313,000 vehicles. GM, the largest automobile company in the U.S., produced over 842,000 vehicles in Mexico last year, the highest among global automobile manufacturers. Mexico also hosts several factories for electric vehicle parts, and if tariffs are imposed, U.S. manufacturers would face difficulties in sourcing these parts.
The high tariffs on Canada would also adversely affect U.S. automobile companies. U.S. corporations have built factories in Canada in partnership with Korean electric vehicle battery manufacturers. Stellantis has partnered with LG Energy Solution to construct a plant in Ontario, Canada, which began operations last year, while GM and POSCO FUTURE M are constructing a cathode production facility in Quebec, Canada.
The New York Times (NYT) reported on the 1st, "Almost all automobile manufacturers will struggle with tariffs on imports from Canada, Mexico, and China, but GM will be the hardest hit." GM has been restructuring its global operations since the late 2010s, producing most of its volume models—except for certain types like electric vehicles—overseas for import back into the United States.
◇ Europe's tariffs will have a minimal impact on the U.S.
President Trump is considering imposing a 10% tariff on all imports from the European Union (EU). The United States is the largest export market for the EU, accounting for about 20% of the EU's total exports. In 2023, the EU recorded a surplus of $160 billion (approximately 234 trillion won) in trade with the U.S.
Compared to Mexico and Canada, which share borders with the U.S. and have lower labor costs, shipping costs for goods across the Atlantic to Europe can be significant. Therefore, analyses suggest that even if tariffs are imposed, the impact on American manufacturing is likely to be limited due to a smaller number of U.S. corporations having factories in Europe.
The items imported from Mexico are also different. The main imports from Mexico to the U.S. include automobiles and parts, as well as household appliances, which could significantly influence inflation should tariffs be applied, increasing the likelihood that U.S. corporations could face production disruptions. Additionally, the U.S. imports electric vehicle batteries, materials, and minerals from Canada. However, imports from Europe primarily consist of food ingredients, alcoholic beverages, and luxury goods, resulting in very little likelihood of a significant impact on U.S. corporations. In 2023, the U.S. imported $1.5 billion in olive oil, $4.7 billion in wine, and $1.2 billion in cheese from the EU.
There is another reason why analysts believe tariffs imposed on the EU are not just negotiation tools. President Trump has demanded Canada and Mexico take immediate actions concerning border management and the control of drugs and illegal immigrants. In contrast, Europe is facing requests for increased defense spending from NATO (North Atlantic Treaty Organization) and deregulation of U.S. tech companies. Since consensus among member countries is necessary and increased defense spending requires a large budget, it is difficult for the U.S. to easily grant tariff exemptions for the EU.
As a result, there are analyses indicating that the imposition of tariffs on the EU may actually be implemented. During Trump's first term, the U.S. imposed tariffs of 25% on bags, wine, cheese, and steel, and 10% on aluminum from the EU.