Canada and Mexico face greater economic risks as US tariffs create uncertainty in global trade
According to PIMCO economist Tiffany Wilding, the Trump administration’s recent tariff announcements have introduced significant volatility in global markets.
The US government announced a 25 percent tariff on imports from Canada and Mexico, along with a 10 percent increase on Chinese goods.
While tariffs on Canada and Mexico have been delayed following last-minute negotiations, the increase on Chinese imports has taken effect, raising concerns about future trade policies and potential retaliatory measures.
Wilding stated that these tariffs could be the beginning of broader trade policy actions by the US, with other countries such as Japan, Germany, Vietnam, and Ireland likely facing a more volatile trade relationship.
If fully implemented, the new tariffs could increase US inflation by approximately 0.8 percentage points and reduce growth by 1.2 percentage points within the first year.
Canada and Mexico, with their strong trade ties to the US, are expected to experience a more significant economic impact than the US-China trade relationship.
The potential for supply chain disruptions remains a key concern. Many US manufacturing processes involve Canadian and Mexican components that cross borders multiple times before final assembly.
As a result, tariffs on these countries could be more damaging than those on China, increasing production costs and slowing economic activity.
Wilding noted that the US Federal Reserve is likely to hold interest rates steady for now.
“Higher uncertainty argues for a slower descent to neutral, and we wouldn’t be surprised to see the Fed holding rates steady throughout the year as it awaits more clarity,” she stated.
While tariffs could contribute to inflation, their broader economic effects may delay any monetary policy changes.
The impact of tariffs on China is expected to be more limited compared to those on Canada and Mexico.
However, continued uncertainty over trade policies and potential retaliatory actions will influence global economic conditions in the coming months.
