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Mexican President Claudia Sheinbaum speaks after reading a letter to be sent to U.S. President-elect Donald Trump, warning that tariffs would cause inflation and job losses in both countries, at National Palace in Mexico City, Mexico, November 26, 2024.
The economic fallout of Trump’s tariff threats
Last night, Donald Trump made clear that no country will be immune to his tariff agenda. In a post on Truth Social, he accused Canada and Mexico – America’s top two trading partners – of not doing enough to curb the flow of fentanyl and illegal immigration and threatened them each with 25% tariff hikes. He also vowed to impose an additional 10% tariff on China for its role in producing the precursor chemicals for fentanyl.
The announcement caused Mexico’s peso to slide, suffering a 1.7% drop against the US dollar, and for Canada’s dollar to hit a four-year low, dropping 0.7%.
In a press conference on Tuesday, President Claudia Sheinbaum responded to Trump’s threat by arguing that tariffs would not solve the migration or drug crisis and would come at the cost of the auto industry – noting that cars from America’s biggest auto manufacturers are some of Mexico’s principal exports to the US. Auto stocks fell in response to the post – with General Motors down as much as 7% on Tuesday. Canadian Prime Minister Justin Trudeau hopped on the phone with Trump, seizing the moment to show voters he knows how to handle the incoming US president.
Meanwhile, Chinese stocks remained relatively solid – dropping just 0.2% – likely because the 10% tariff was lower than many investors’ worst expectations.
The US economy was also unphased by the news, with the Nasdaq and S&P 500 both making gains in response to Trump appointing hedge fund manager Scott Bessent as treasury secretary. Bessent is expected to be a steward of the stock market and a moderator of Trump’s wildest economic ambitions.
How likely is Trump to follow through? Eurasia Group US analyst Noah Daponte-Smith says it’s hard to predict. “What we do know,” he says, “is that Trump is serious about the tariffs and has the legal means to implement them if he wants.” Even if Trump doesn’t implement them on day one, “the threat of implementation will hang over the USMCA relationship for the entire Trump term if these underlying grievances are not addressed in the manner Trump desires.”U.S. Republican presidential candidate Donald Trump holds a copy of the Wall Street Journal while speaking at a Trump for President campaign rally at the Jacksonsville Landing in Jacksonville, Florida.
Trump's treasury tussle: The search for a Wall Street-friendly populist
Donald Trump won the White House on a promise to turn around the US economy. Now, he’s struggling to appoint a lieutenant to tackle the job.
In contrast to his many hasty appointments to the rest of his cabinet, Trump has been hesitant to choose a treasury secretary. His uncertainty stems from his desire to find someone loyal to his populist economic agenda – unlike his first term treasury secretary, Steven Mnuchin, who often opposed him – but who won’t spook tariff-wary Wall Street.
Wait, what does the treasury secretary do? The treasury secretary is the economy’s quarterback, responsible for overseeing the country’s international trade policy. They direct the domestic and global economic agenda, as well as tax and tariff policies.
Who are the contenders? Trump is reportedly considering former Federal Reserve governor Kevin Warsh and Wall Street titan Marc Rowan, who emerged as possible frontrunners after financiers Howard Lutnick and Scott Bessent no longer seemed like obvious choices amid rumors they may have lost a bit of their shine. Trump accused Lutnick, who has been leading his transition operation, of manipulating the process in his favor. Bessent may still be in the running, but after a knife fight with Lutnick last week, Trump has started looking elsewhere.
He is allegedly not considering his former trade adviser Robert Lighthizer, out of fear that his open embrace of tariffs would stall the momentum on Wall Street since his victory – an indication that Trump may sacrifice portions of his tariff plans if it means keeping the financial sector happy. However, Lighthizer may still hold another senior trade or economic role. Trump’s final decision is expected to be made after he meets with the candidates at Mar-a-Lago later this week.