Warwick McKibbin and Marcus Noland from the Peterson Institute for International Economics have published an analysis on Trump’s tariff threats “over illegal immigration and the flow of drugs.” They find that the tariffs would damage all of the economies involved, but include the caveat that “history suggests that Trump may not act on his threats.” The authors conclude that renegotiating USMCA would be preferable to the fallout from Trump’s tariff threats, though the “political uncertainty tempers hope of finding a resolution.” The potential of the threatened tariffs against China coming to fruition are higher, given Trump’s actions during his first term.
Below we share the projected tariff scenarios.
Figure 1 shows that the imposition of the tariff would slow growth and accelerate inflation in all three countries.
Figure 2 shows the damage that an additional 10 percent tariff could inflict on the Chinese and US economies… [and] the results of a retaliation scenario (dotted lines).
The result of combining the threats—a 25 percent tariff on Canada and Mexico and an additional 10 percent tariff on China (which retaliates)—is shown in figure 3.
