Tariff Trump – A deeper look about what is at stake with Canada, Mexico and China. How much trade amount with these countries vis-a-vis to America 2023 GDP. What it means- 3min read
By admin / February 10, 2025 / No Comments / Let's Be Informed- News Today
How much trade are we looking at?
1. America and Canada trade – While Canada sells slightly more to America than the other way around, Canada is much more dependent on trade with America
According to Bureau of Economic Analysis (BEA), America grew its real GDP by 2.5 percent in 2023 to a level of $27.36 trillion. (note 1)
Canada exported USD 488 bn of goods and services to America, and about 25 percent or USD 125 bn worth are related to energy sector (crude oil, natural gas and coal). Canadian exports to America accounted for 1.8 percent of America’s 2023 GDP. At the same time, Canada imported USD $424 bn worth of goods and service from America. (note 1).
America has a modest trade deficit with Canada and it becomes a trade surplus when energy goods are excluded. Canada is also a net importer of services from America.
America bought 77 percent of Canadian exports, while it sold 63 percent of Canadian imports. On the other hand, Canada bought 18 percent of America exports, while it sold 14 percent of American imports. As such trading with America is a significant to Canada. For America, trade does not have as high significance in percentage basis, even though America strategically imports a sizable amount of energy goods from Canada. (note 1)
Canada is the largest export destination for American goods (18 percent ), followed by Mexico (12 percent ) and China (7 percent ). That said, assume a hypothetical scenario where America imposes a flat general tariff of 25% on Canada goods and services, and Canada does a reciprocal tariff, Canada is likely to take a bigger blow from the blunt of tariffs.
2. America and Mexico trade – Mexico sells more to America then the other way around and is much more dependent on trade with America
In 2023, Mexico exported USD 529 bn of goods and services to America. Mexican exports to America accounted for about 1.9 percent of America’s 2023 GDP. At the same time, Mexico imported USD $367 bn worth of goods and service from America. (note 1).
America has a large trade deficit of USD 162 bn with Mexico, and Mexico has just overtaken China as the largest exporter to America in 2023.
In 2023, America bought 82 percent of total Mexican exports, while it sold 61 percent of total Mexican imports. On the other hand, Mexico bought 12 percent of total American exports, while it sold 14 percent of total American imports. As such, trading with America is a significant to Mexico. For America, trade does not have as high significance in percentage basis, even though America strategically imports a sizable amount of automotive vehicles, parts, and engines goods from Mexico (which accounted for 33%).
That said, assume a hypothetical scenario where America imposes a flat general tariff of 25% on Mexico and its goods and services, and Mexico does a reciprocal tariff, Mexico is likely to take a bigger blow from the blunt of tariffs. Thus, Mexico will likely to accede to any negotiation talks that America initiates and to America’s favor.
3. America and China trade – China is not more dependent on America for trade, though it requires high technology from America to complete its high tech goods and services.
China exported USD 448 bn of goods and services to America. Chinese exports to America accounted for 1.6 percent of America’s 2023 GDP. At the same time, China imported USD $196 bn worth of goods and service from America. (note 2).
America has a large trade deficit of USD 252 bn with China.
In 2023, America bought 11 percent of total Chinese exports, while it sold 7 percent of total Chinese imports. On the other hand, China bought 7 percent of total American exports, while it sold 12 percent of total American imports. As such, trading with America is less concentrated compared to two other countries since China sells to almost all countries in the world. For America, trade does not have as high significance in percentage basis as well. America imports consists a sizable amount of consumer goods from China (which accounted for 47%). Both countries are of even trading “strength” and not overly dependent on the other for trade as each bought about 11 percent of the other’s exports for 2023.
That said, assume a hypothetical scenario where America imposes a flat general tariff of 10 percent on China and its goods and services, and China does a reciprocal tariff, China is unlikely to take a bigger blow from the blunt of tariffs. Thus, China will unlikely back down from any reciprocal tariff and accede to America’s favor.
4. Overall Implication
In the short term, American government will be able to collect a year’s tariff revenue of about USD 295 bn (25% x 480 + 25% x 530 + 10% x 450), before American buyers can find a substitute supplier from America. What it means as well is that the tariff revenue, while will be paid by the overseas supplier or American buyer or shared, will decrease once a substitute supplier is found within America.
On the other hand, reciprocal tariff imposed on the American supplier selling overseas will increase his selling cost. The extent to which the American supplier can raise his price to pass on higher cost to overseas buyer depends on the price demand elasticity of the type of goods affected. For high tech goods and services, the better the extent to pass on the higher cost. For American suppliers of consumer goods or goods with many substitutes, they will expect lower revenues and profits in the coming years. They will need to transform and more up the value chain of goods and services to survive, or provide more free after sales services or free consultancy services that will come with each purchase.
Signing off
Nex Buzz Nex Contributor
10 Feb 2025, Monday.
Notes
Exchange rates used. 1 USD to 1.43 CAD