Trump Tariffs Reduce US Exports

Donald Trump’s new tariffs on imports from Canada, Mexico and China could reduce US exports by 22 percent. Canada and Mexico would likewise be hugely affected. In the case of countermeasures on the US tariffs, Canada would have to face a decline in its total exports of 28 percent, and for Mexico the figure would be 35 percent. “While China can more easily redirect trade away from the United States, Canada and Mexico have significantly closer ties with the United States due to their geographical location,” says Lisandra Flach, Director of the ifo Center for International Economics.

China would experience the lowest impact (decline of 3.8 percent). Germany’s total exports would increase slightly due to the US tariffs (growth of 0.5 percent). “The effect on German exports is double-edged: On the one hand, the US tariffs would reduce demand from the Canadian and Mexican economies for German goods. On the other, German exports to the United States would displace Canadian, Mexican, or Chinese exports. However, due to Trump’s threats to also impose tariffs on US imports from the EU in the near future, the chances of such a growth in exports appear to be very slim,” says Flach.

In the medium term, Canada would have to expect a 14 percent decline in industrial value added. In Mexico, industrial value added would slump by 13 percent. The figure in China would only be just under 1 percent. That’s according to calculations by the ifo Institute, taking account of countermeasures by the countries affected in response to the US tariffs.

Without countermeasures on the US tariffs, the slump in industrial value added in Canada would be slightly higher (15 percent). In Mexico, industrial value added would fall by just under 10 percent. The decline in total exports without countermeasures would also be somewhat lower: 17 percent for Canada, 21 percent for Mexico, and even 14 percent in the US itself. Without countermeasures, the decline in exports for China would amount to 2.7 percent. Germany’s exports would increase marginally, by 0.2 percent.

The effects of US tariffs on Canada, Mexico and China were analyzed using the ifo trade model based on two scenarios. In the first scenario, 25 percent tariffs are levied on Mexican and Canadian products, with the exception of energy-related sectors from Canada, which are subject to tariffs of only 10 percent. In addition, Chinese products are subject to 10 percent tariffs. The second scenario (dollar-for-dollar scenario) looks at a situation in which Mexico, Canada and China respond with countermeasures.