| Harvey Specter | 01-21-2025 03:03 PM |
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President Trump is using the threat of imposing stiff tariffs on goods from Canada and Mexico as soon as next week to pressure the two nations to start renegotiating a continental trade deal, according to people familiar with the matter. The U.S.-Mexico-Canada (USMCA) trade agreement, which was crafted during Trump’s first term in office as a replacement for the North American Free Trade Agreement, is up for statutory review in 2026—but Trump hopes to renegotiate it sooner, the people said.
Trump is particularly focused on using the threat of tariffs to change automotive rules under the continental trade pact, forcing car plants to move from Canada and Mexico back to the U.S., according to people familiar with his thinking. That has sent major automakers rushing to find ways to satisfy Trump without “blowing up the North American auto supply chain” that extends throughout the three nations, according to one auto-industry executive. Trump, according to people briefed on the matter, will turn to Howard Lutnick, his pick for Commerce secretary, and Jamieson Greer, his nominee to be the U.S. Trade Representative, to handle the renegotiation of the USMCA.
The White House didn’t respond to a request for comment. The USMCA governs roughly $2 trillion of trade between the U.S. and its continental neighbors. It was approved by Congress with the broadest support of any trade deal in U.S. history. More than 200 Democrats in the House and Senate joined Republicans in backing the agreement because of the stricter labor and environmental standards that Trump’s team added to broaden its appeal. Since its signing, Mexico and Canada have supplanted China as the leading U.S. trading partners, according to Census Bureau data.
“I don’t think there’s any question that there will be a reboot of USMCA,” said Sen. Kevin Cramer, (R., N.D.), a close Trump ally. Cramer said he has been in contact with Canadian officials about how they can assuage Trump’s demands, either by reforming the trade pact, addressing fentanyl smuggling, or contributing more military spending to the North Atlantic Treaty Organization—all longstanding Trump irritants. “Hopefully they’ll respond quickly and dramatically enough to avoid the tariffs altogether,” he said, adding “that’s certainly the goal.”
Other lawmakers close to Trump are warning Canada and Mexico not to take his tariff threats lightly. Sen. Bill Hagerty (R., Tenn.), a Trump ally who served as his ambassador to Japan during the first term, said it would be “woefully naive” to see Trump’s tariff threats as only a cudgel for renegotiating trade deals. “He will do it,” said Hagerty of imposing tariffs, adding that he has also recently been in contact with Canadian officials on how they can create a more “reciprocal” trading relationship with the U.S.
“I’m not going to talk him out of it,” said Sen. Ron Johnson, (R., Wis.). “He’s well aware of my misgivings and my concerns,” Johnson added, pointing to the effect Trump’s first-term tariffs had on Wisconsin-based Harley-Davidson. Trump told reporters on Monday, his first day in office, that he is aiming to place 25% tariffs on Canada and Mexico on Feb. 1. He signed a wide-ranging trade memorandum that instructed USTR to take the lead on reviewing the effect of the USMCA on workers, farmers, and ranchers—and make recommendations on U.S. participation in the agreement.
Mexico and Canada are the U.S.’s two largest trade partners, respectively, and both countries are bracing for major economic disruption should Trump follow through. Mexico and Canada send about 80% of their exports to the U.S., and their manufacturing, agricultural, and commodities industries are tightly integrated. Canada’s prime minister, Justin Trudeau, said Tuesday that Canada is ready to hit back, promising that any response would be “robust, and rapid, and measured, and very strong.”
Canadian officials are weighing retaliatory tariffs on up to $150 billion of U.S. products such as Kentucky bourbon and Florida orange juice as a possible response, depending on what Trump actually does. Canada has also threatened to add an export tax on the 4 million barrels a day of oil it sends to U.S. refiners, which could ultimately boost the cost of gasoline to U.S. customers. “Everything is on the table,” Trudeau said. He acknowledged that tariffs on U.S. goods and services would also hurt Canadian consumers and businesses, and said the government is ready to provide financial support to households and businesses to cushion the blow.
Mexican President Claudia Sheinbaum preached calm at her daily news conference. “Let’s keep a cool head,” Sheinbaum said. “We should always avoid confrontations.” Sheinbaum said last year that U.S. tariffs could bring retaliation from Mexico. In 2018, Mexico responded to U.S. tariffs on steel and aluminum with tariffs of its own, which targeted U.S. products ranging from steel to pork, cheeses, and apples.
Trump wants to wait until he has his full trade team in place before potentially moving forward with tariffs, some of the people familiar with the matter said. His economic team, including Lutnick, Greer, and Scott Bessent, his pick for Treasury secretary, hasn’t yet been confirmed. Trump on Monday said he was still considering plans to impose across-the-board tariffs on virtually every trading partner, which some Republicans hope to use to generate revenue that will offset an extension of Trump’s tax cuts this year. Trump privately told Senate Republicans at a Jan. 8 lunch on Capitol Hill that he is convinced tariffs can raise around $1 trillion in revenue, according to a person present for the meeting.
The legal authority that Trump would use to impose the 25% tariffs on Canada and Mexico remains uncertain, according to people with knowledge of policy discussions. Trump could use so-called Section 232 national security tariffs, or he could use the International Emergency Economic Powers Act, which his advisers have weighed as a tool to impose his across-the-board tariffs, but could also be applied to individual nations. Other options remain in play as well.
In Canada, the government had planned a two-day cabinet retreat, which began on Monday, to coincide with Trump’s inauguration and to prepare to fight a trade war. Ministers have been discussing possible retaliatory measures and getting presentations from trade negotiators and industry representatives about the possible economic impact. Economists warn that Trump’s plans could result in significant economic disruptions across the continent. A 25% tariff on all U.S.-bound Canadian exports could throw the Canadian economy into a recession, squeezing gross domestic product by as much as 3%. Retaliatory tariffs would only add to the pain.
Last month, Bank of Canada Gov. Tiff Macklem warned that the Trump tariff threat has likely damped business confidence and paused investment plans. A tariff would trigger widespread disruption in the Canadian economy, Macklem said. The tariff threat is already affecting Canadian businesses, according to a Bank of Canada survey conducted last month. Executives fear a pickup in inflation from U.S. tariffs. Some companies have lowered their sales forecasts and scaled back hiring and investment plans.
“Companies are going to make their decisions based on the concrete policies that emerge over the coming weeks and months,” said Jake Colvin, president of the National Foreign Trade Council, an industry trade group. “In the meantime, businesses are going to have to live with that uncertainty and prepare as best they can for a variety of tariff scenarios.”
Paul Vieira in Ottawa and Anthony Harrup in Mexico City contributed to this article.
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