Key Takeaways
- Renewed speculation surrounding a potential second wave of US protectionism centres on a set of aggressive, targeted tariffs against major trading partners, including rates of up to 35% on Canada.
- Unlike the broader tariffs of 2018, these rumoured proposals appear calibrated against specific allied economies, suggesting a strategy aimed at renegotiating core trade relationships rather than just targeting China.
- Analysis of key trade data reveals significant exposure in the automotive, electronics, and industrial machinery sectors, with deeply integrated North American supply chains facing the most acute risk of disruption.
- Historical precedent from the 2018–2019 trade conflict indicates that such tariffs are likely to manifest as a tax on domestic consumers and a margin compressor for US corporations, with limited evidence of achieving stated goals like reshoring manufacturing.
Recent market chatter has revived the spectre of a significant escalation in US trade protectionism, with specific, and severe, tariff proposals reportedly being contemplated for America’s closest economic partners. Speculation centres on a potential August implementation of new duties targeting Canada (35%), Mexico (30%), the European Union (30%), Japan (25%), and South Korea (25%). While the veracity of these exact figures remains unconfirmed, they provide a useful framework for analysing the profound economic and strategic consequences of such a policy shift, moving beyond abstract threats to a tangible, albeit hypothetical, scenario.
A Framework for Disruption
The rumoured tariff structure suggests a calculated approach, with rates seemingly calibrated according to the nature of the trading relationship and the perceived leverage. If enacted, the schedule would represent a dramatic departure from existing trade agreements and norms, particularly for allies operating within frameworks like the US Mexico Canada Agreement (USMCA).
| Country/Region | Rumoured Tariff Rate |
|---|---|
| Canada | 35% |
| Mexico | 30% |
| European Union | 30% |
| Japan | 25% |
| South Korea | 25% |
The gravity of these figures becomes clear when juxtaposed with the scale of US trade. In 2023, these five partners alone accounted for over $3 trillion in total trade with the United States, representing the bedrock of global supply chains.1
Contextualising the Economic Exposure
An examination of 2023 trade data from the U.S. Census Bureau highlights the immense volume of commerce at risk. Mexico and Canada are not merely trading partners; their economies are deeply intertwined with the US, a reality the proposed tariffs would directly challenge.
| Partner | Total 2023 Trade with US (Goods) | US Rank |
|---|---|---|
| Mexico | $798.8 Billion | 1 |
| Canada | $718.4 Billion | 2 |
| European Union | $1.2 Trillion (approx.) | N/A (as bloc) |
| Japan | $203.7 Billion | 5 |
| South Korea | $187.5 Billion | 6 |
For Mexico and Canada, a 30% to 35% tariff would be catastrophic for the automotive sector, where parts and finished vehicles cross the border multiple times before final assembly. The policy would effectively dismantle decades of supply chain optimisation under NAFTA and the USMCA. For the EU, a 30% tariff would heavily impact German automakers and French luxury goods, while Japan and South Korea would see their crucial electronics and automotive exports penalised.
Lessons from the 2018 Precedent
We do not need to look far for a case study. The trade disputes of 2018–2019 provide a clear template for the likely consequences. Research from the Tax Foundation concluded that the tariffs imposed during that period were paid almost entirely by US importers, who passed the costs on to consumers through higher prices or absorbed them through lower margins.2 The policy led to a peak tax increase equivalent to over $80 billion annually and was met with retaliatory tariffs from trading partners targeting over $100 billion of US exports, particularly in agriculture.2
Crucially, there was little evidence that these tariffs spurred a significant reshoring of manufacturing jobs. Instead, they introduced a layer of uncertainty and complexity that complicated capital investment decisions and raised input costs for the very domestic producers they were meant to protect.
Forward Guidance and Strategic Implications
Should such a policy be pursued, the market reaction would likely be swift and unforgiving. The immediate focus would be on currency markets, with significant downward pressure expected on the Canadian dollar, Mexican peso, and the euro against the US dollar. Equity markets would likely punish companies with high international revenue exposure and complex global supply chains, particularly in the automotive, industrial, and technology sectors.
Conversely, domestically focused firms with primarily US based supply chains could see relative outperformance, though they would not be immune to the broader inflationary impact and potential economic slowdown.
As a final thought, consider a potential second-order effect beyond the initial market shock. The primary casualty of such a policy may not be trade volumes themselves, but rather the certainty required for long term capital expenditure. A global environment characterised by unpredictable, punitive tariffs could paralyse corporate investment, incentivising a flight to the safety of short term government debt and cash equivalents. In such a scenario, the greatest risk is not just a trade war, but a global investment strike, where the dominant strategy becomes simply to wait for the geopolitical storm to pass.
References
1. U.S. Census Bureau. (2024). Top Trading Partners – December 2023. Foreign Trade Statistics. Retrieved from https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html
2. York, E., & Madi, C. (2021). The Economic and Distributional Impact of the Trump Administration’s Tariffs. Tax Foundation. Retrieved from https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/
3. Massie, C. (2024, May 22). What another Trump presidency would mean for trade. The Week. Retrieved from https://theweek.com/us/politics/what-another-trump-presidency-would-mean-for-trade
4. Bown, C. P., & Keynes, S. (2024, May 9). Trump’s Big Tariffs Would Start a New Global Trade War. Peterson Institute for International Economics. Retrieved from https://www.piie.com/research/piie-charts/trumps-big-tariffs-would-start-new-global-trade-war
5. BBC News. (2024, March 12). What a second Trump term could mean for the world. Retrieved from https://www.bbc.co.uk/news/world-us-canada-68511470
6. Ward, A. (2024, March 6). How Donald Trump’s allies are plotting a new trade war with Europe. POLITICO. Retrieved from https://www.politico.eu/article/donald-trump-allies-plotting-trade-war-europe/
