President-elect Donald Trump's latest tariff proposal could represent a potential economic earthquake, with economists already forecasting significant fallout for trade flows, exchange rates and consumer prices.
On Monday, Trump announced plans to impose a 25% tariff on all imports from Mexico and Canada, blaming these nations for failing to curb drug trafficking and illegal immigration. Additional, he pledged a 10% hike on Chinese tariffs.
Mexico, Canada, and China collectively make up 43% of U.S. goods imports, with shares of 15.4%, 13.6%, and 13.9%, respectively, according to Goldman Sachs.
Goldman Sachs: Tariffs Could Rattle Global Markets
Goldman Sachs analysts were quick to assess the broader economic implications of Trump's tariff rhetoric.
Isabella Rosenberg, a Goldman Sachs forex analyst, said the proposed 25% tariff on Mexican and Canadian imports would represent a significant economic shock for both the loonie and the peso.
"If tariffs were to rise to 25%, the estimated impact to USD/CAD and USD/MXN would be about 13% and 17%, respectively," she said in a note to clients on Tuesday.
On Tuesday, the Mexican peso weakened by 1.9%, while the Canadian dollar – as tracked by the Invesco CurrencyShares Canadian Dollar Trust (NYSE:FXC) – fell by 0.6%.
Tariffs at the levels proposed by Trump would disrupt supply chains and amplify costs, Rosenberg said.
The analyst said she expects that a renegotiation of United States-Mexico-Canada Agreement (USMCA) – which replaced the previous North America Free Trade Agreement (NAFTA) – will likely take place next year.
“The USMCA is up for review and renewal in 2026, and it appears likely that this will involve renegotiating some aspects of the Agreement,” she wrote. Such uncertainty will keep the Canadian dollar under pressure in 2025, according to her view.
Joseph Briggs, an economist at Goldman, said: "We expect that the incoming Trump administration will impose higher tariffs on imports from China as well as auto imports from Europe and Mexico shortly after his inauguration in January."
Briggs added that the tariffs would likely affect economic data even before they're enacted, citing heightened policy uncertainty and ripple effects across currency markets.
$300 Billion In Government Revenue, But At Cost Of Higher Inflation
If fully rolled out, the tariffs would generate nearly $300 billion in annual revenue for the U.S. government, equivalent to about 1% of GDP, according to Goldman's calculations.
Yet the direct effects of tariffs don't stop at border disputes — they also trickle down to the wallets of everyday Americans.
Goldman Sachs estimates the effective tariff rate in the U.S. would rise by 8.6%, leading to a 0.9% increase in core PCE (Personal Consumption Expenditures) prices.
For context, this inflationary impact is three times larger than the effect of previous tariffs under Trump's first administration, such as those targeting China and auto imports.
Bottom Line: Trade Tensions Are Back
Trump's latest trade salvo reintroduces significant tension to global markets, evoking comparisons to his first term's tariff battles.
The potential 25% tariff on Mexico and Canada has economists and investors bracing for wide-ranging effects, from inflation and exchange rate volatility to supply chain disruption and consumer pain.
While Trump's hardline tactics often double as negotiating strategies, the sheer scale of this proposal ensures that its reverberations will be felt long before Jan. 20.
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