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United States
January 31, 2025 President Trump has threatened to impose tariffs on Canada, China, and Mexico - the United States’ largest trading partners - on February 1. U.S. importers will pay a 25 percent tax on all goods from Canada and Mexico, as Trump tries to force both countries to curb migration and drug trafficking into the United States. Imports from China, meanwhile, will face 10 percent tariffs unless Beijing reins in the smuggling of fentanyl precursor chemicals to Canada and Mexico, where they are made into U.S.-bound fentanyl. How could tariffs affect the United States? Nearly half of all U.S. imports - more than $1.3 trillion - come from Canada, China, and Mexico. The new tariffs could reduce overall U.S. imports by 15 percent. The tariffs will generate around $100 billion per year in extra federal tax revenue. They would also impose significant costs on the broader economy: disrupting supply chains, raising costs for businesses, eliminating hundreds of thousands of jobs, and ultimately driving up consumer prices. Certain sectors of the U.S. economy would be hit particularly hard, including the automotive, energy, and food sectors. Gas prices could surge as much as 50 cents per gallon in the Midwest, as Canada and Mexico supply more than 70 percent of crude oil imports to U.S. refineries. Also at risk are cars and other vehicles, as the United States imports nearly half its auto parts from its northern and southern neighbors. A 25 percent tariff on Canada and Mexico would raise production costs for U.S. automakers, adding up to $3,000 to the price of some of the roughly sixteen million cars sold in the United States each year. Grocery costs would rise, too, as Mexico is the United States’ biggest source of fresh produce, supplying more than 60 percent of U.S. vegetable imports and nearly half of all fruit and nut imports. Still, the United States is less reliant on trade than many other industrialized economies, including Germany, Japan, and the United Kingdom. Imports and exports make up just a quarter of U.S. gross domestic product (GDP), and the United States sources what it does import from a fairly broad set of nations. Tariffs would hit Canada and Mexico much harder, as trade makes up about 70 percent of both economies’ GDP. The two countries are particularly dependent on trade with the United States. Asymmetries in the cost of tariffs at home give the U.S. significant leverage over its North American partners in negotiations. More than 80 percent of Mexico’s exports - including cars, machinery, fruits, vegetables, and medical equipment - head north, accounting for 15 percent of total U.S. imports. This dependence is especially pronounced on Mexico’s northern border. There, industrial states Chihuahua, Coahuila, Nuevo León, and Baja California account for nearly half of Mexico’s exports to the United States, sending more than $200 billion worth of computers, electronics, transportation equipment, and other products each year. A unilateral 25 percent tariff on these goods could slash Mexico’s GDP by some 16 percent, with Mexico’s auto industry bearing the brunt. Mexico sends nearly 80 percent of the cars it produces to the United States alone, amounting to some 2.5 million vehicles each year. Duties would also threaten Mexico’s energy sector; the United States is the recipient of roughly 60 percent of Mexico’s petroleum exports, most of which is crude oil bound for U.S. refineries. At the same time, Mexico is the top destination for U.S. refined oil exports, which meet over 70 percent of domestic demand. U.S. tariffs would make fuel more expensive, raising prices at the pump and straining Mexico’s broader economy. Canada faces a similar challenge. The United States buys more than 70 percent of Canada’s exports, with these goods making up 14 percent of total U.S. imports. Under the new tariffs, Canada’s energy sector would take the biggest hit, as exporters send 80 percent of their oil south. How could tariffs affect China? Over the past two decades, the country has steadily reduced the importance of trade to its economy as Beijing has ramped up domestic production. The country’s share of global trade has climbed roughly 4 percent since 2016, when President Trump first took office, even as the United States’ share has dipped. China is comparatively less dependent on the United States and less reliant on trade overall. In recent years, U.S.-China trade has declined, particularly in sectors hit by previous tariffs and export controls, such as auto parts, data servers, furniture, and semiconductors. China has instead ramped up trade with other partners including the European Union, Mexico, and Vietnam. Today, imports and exports account for only about 37 percent of China’s GDP, compared to more than 60 percent in the early 2000s. Combined, these factors would lessen the shock of an additional 10 percent tariff on Chinese exports to the United States. What could happen the day after? Each country’s currency could weaken further, lessening the bite of tariffs on imports and raising the effective price of U.S. exports to other nations. The roughly 30 percent depreciation of Mexico’s peso since April and the Canadian dollar’s 8 percent drop since September also lessens the potential impact. Markets could potentially drive the peso, as well as the Canadian dollar, further down if tariffs are put in place. A weakened yuan has already softened the blow for Chinese producers, helping their exports remain competitive around the world. Additionally, Canada, China, or Mexico could respond in kind, imposing tit-for-tat tariffs on the United States. Mexican President Claudia Sheinbaum has already suggested that Mexico could retaliate with tariffs of its own, and the United States-Mexico-Canada Agreement (USMCA), which underpins North American free trade, would likely allow it. This wouldn’t be the first time countries have reciprocated. In 2018, Mexico and Canada placed retaliatory tariffs on a combined more than $15 billion worth of U.S. goods - including steel, pork, yogurt, and tablecloths - after Trump imposed tariffs on their steel and aluminum. Likewise, the United States lost $20 billion in annual farm exports when China hit back against a slew of U.S. tariffs from 2018 to 2019. If either Canada or Mexico retaliates, U.S. fuel exporters would likely take the biggest hit alongside automakers and other advanced manufacturers, including pharmaceutical producers. Retaliatory tariffs on the United States would predominantly affect manufacturing-heavy states. Mexico buys 70 percent of New Mexico’s exports, including billions of dollars in U.S. semiconductor chips and electrical components that later return to the United States in Mexican-made cars and appliances. Texas sends more than $20 billion in chips, auto parts, and electrical equipment to Mexico; overall, the state’s southbound exports account for 5 percent of its GDP. Tariffs would also dent Ohio’s $5 billion worth of auto and metal exports to Canada as well as Maine’s $320 million in northbound lumber and paper exports. (Source: Council on Foreign Relations – U.S.)
by O'Neil and Huesa
January 31, 2025 In the past, most but not all nuclear arms control agreements with Russia have been submitted as treaties to the Senate for its advice and consent. "The now Republican-controlled Senate would likely pair approval of any such agreement with additional funding and requirements to accelerate and expand the ongoing nuclear modernization program, which is already slated to cost almost $2 trillion over the next 30 years'. To gain Senate approval, a treaty would require 67 votes. It is not hard to see at least two dozen Democrats or so supporting a deal to cap - even at such a large increase of forces - nuclear weapons and fund what will be billed as a necessary expansion of the US deterrent forces. Is a bad agreement worse than no agreement at all? By any historical standard, an agreement that is not effectively verified and does not substantially limit the growth of US, Russian (or Chinese) nuclear forces has marginal value for the United States and its allies. One that enables a doubling of strategic forces is better described as performative arms control. A hollow agreement might feel good, but it would likely do little to reduce nuclear risks or address growing international pressure to take serious steps toward disarmament. Of course, these voices are likely to have little, if any, influence on the Trump administration, which now feels empowered and eager to destroy past norms and agreements. And such a nuclear deal might even bolster Trump’s self-promoted case that he deserves a Nobel Peace Prize, another one of Trump’s long-held wishes. But even if negotiated and approved, such a treaty would not bring stability or peace - and it would have to be heavily scrutinized. Yet without an agreement, the three largest nuclear powers will likely keep building up their arsenals. Weighing the benefits of a performative agreement versus no agreement at all is a choice the United States can and should seek to avoid. Trump has an opportunity to negotiate a deal that effectively reduces nuclear risks and improves US security. There remains hope that the president might put in the hard work required to achieve a treaty that caps US and Russian strategic weapons at current or lower levels -a level still far above what China possesses. If Washington and Moscow lock in current levels, it could take China as long as 20 years for them to catch up. This means Russia and the United States together would have almost 10,000 total weapons and China would have no more than 1500 for at least the next decade. And if China’s arsenal ever gets to a size that undermines the United States’s deterrent, whoever is president at the time would always have the possibility of withdrawing from a treaty that no longer serves US interests. Given how quickly the international security environment is changing, the new agreement could have an initial period of five years, with the option to extend for additional five-year periods, as needed. In the intervening years, circumstances and leaders will change. Creating some nuclear stability and predictability for a decade or more is a worthy achievement and should be seriously considered. "A new agreement at current or lower levels should and could include robust on-site verification that uses the lessons learned from over 50 years of inspections, as well as rely on advanced satellite and other sensor technology". All can be brought to bear in a way that protects secrets but provides the necessary transparency to make a deal worth having. Certainly, a bad nuclear deal with Russia can, in many ways, be worse than no deal at all. But in this case, President Trump has a chance to prove his negotiating prowess and produce a deal that benefits US security now and into the future without compromising the ability of the United States to deter both Russia and China, at the same time. If President Trump seizes that chance, he will deserve accolades. (Source: Bulletin of the Atomic Scientists, a website and a bi-monthly, academic journal - U.S.)
by Wolfsthal, who directs the Global Risk program at the Federation of American Scientists, serves on the Science and Security Board of the Bulletin of the Atomic Scientists, and is a member of the US Department of State’s International Security Advisory Board.
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