The recent back-and-forth on tariffs imposed by the US on Canadian and Mexican goods underscores the unpredictability of President Donald Trump’s trade policies. Within days of enforcing sweeping duties, the administration has rolled back significant portions, offering targeted exemptions. While this move provides temporary relief for businesses struggling with supply chain disruptions, the strategy remains chaotic, raising concerns about long-term economic stability. At the heart of the issue is Mr Trump’s belief that tariffs serve as a tool to protect American industries and bolster domestic manufacturing.
However, history has shown that protectionist policies rarely produce intended results. Instead of revitalising local production, tariffs often lead to higher costs for businesses and consumers alike. With complex supply chains crisscrossing North America, duties on raw materials and finished goods inevitably raise prices, making American industries less competitive rather than more resilient. The exemptions granted under the US-Mexico-Canada Agreement (USMCA) reflect an implicit acknowledgment of this economic reality. Critical imports such as automobiles, agricultural products, and potash have been spared from the harshest tariff measures, likely in response to lobbying from industry leaders. Yet, this selective approach does little to dispel the uncertainty surrounding US trade policy. If businesses cannot predict whether tariffs will be imposed or lifted at a moment’s notice, planning for the future becomes nearly impossible. Canada and Mexico have responded differently to Mr Trump’s maneuvering. Canadian leaders have signaled frustration, with Prime Minister Justin Trudeau warning of a prolonged trade conflict.
Mexico, under President Sheinbaum, has taken a more diplomatic stance, opting to engage in negotiations while addressing shared security concerns. These contrasting approaches reveal how Mr Trump’s tariff policies are reshaping diplomatic relations in North America. While the US retains economic leverage, its erratic decision-making weakens trust and could push its neighbours to seek alternative trade alliances. The economic consequences of these policies are already visible. Trade volumes between the three nations remain high, but businesses are adjusting their strategies to minimise exposure to sudden tariff hikes. Some firms are accelerating import shipments ahead of anticipated restrictions, while others are exploring ways to claim duty-free exemptions under USMCA.
In the long run, these disruptions could incentivise companies to diversify supply chains away from the US, reducing American economic influence rather than strengthening it. Beyond North America, Mr Trump’s tariff strategy signals a broader return to economic nationalism. His administration has hinted at expanding trade barriers beyond Canada and Mexico, with promises of “reciprocal” duties on other nations. If this pattern continues, it risks triggering wider retaliatory measures, ultimately harming the very industries tariffs are meant to protect. In the short term, businesses may welcome the recent exemptions as a reprieve from economic turmoil. However, the fundamental problem remains ~ trade policy driven by political calculation rather than economic logic creates instability. As the US moves ahead with its agenda, it must recognise global economic leadership is built on trust and consistency.