Dollar Jumps as Trump Eyes More Tariffs on Canada and Mexico

The U.S. dollar surged on Monday as President-elect Donald Trump hinted at imposing additional tariffs on Canada and Mexico, in addition to the 25% tariffs he had previously announced on all imports from these countries. The move, which Trump claims will pressure these nations to intensify efforts against migration and drug trafficking, has sparked market uncertainty and currency fluctuations.



The U.S. accounted for more than 83% of Mexico's exports and 75% of Canada's exports in 2023, making these countries highly vulnerable to Trump's tariff threats. The proposed 25% tariff on all imports from Mexico and Canada, effective from Trump's first day in office, could have significant economic consequences for both countries and the U.S.

Ivey Business School professor Andreas Schotter warns that a 10% tariff scenario could trigger an estimated 2.4 percentage point contraction in the Canadian GDP over two years, putting approximately 500,000 jobs at risk. A 25% scenario could triple these job losses to 1.5 million positions for Canada, also causing severe supply chain disruption and permanent structural changes. The U.S. would face a one percentage point GDP reduction and a $3.5 trillion to $4 trillion deficit increase.

The tariffs may also spell trouble for overseas companies like the many Asian auto and electronics manufacturers that use Mexico as a low-cost production gateway for the U.S. market. The complex interplay between Chinese and Mexican suppliers could amplify the effects of the Mexican tariffs, further damaging the U.S. economy.

Trump's announcement sparked a dollar rally, with the U.S. dollar rising 1% against the Canadian dollar and 1.6% against the Mexican peso. Share markets in Asia fell, as did European bourses in early trade. S&P 500 futures were little changed.



While the immediate market reaction to Trump's tariff threat was relatively muted, investors should be prepared for potential volatility and uncertainty in the coming months. As Trump's administration takes shape, investors will be closely watching his policy decisions and their impact on the U.S. economy and global markets.

In conclusion, Trump's proposed tariffs on Canada and Mexico could have significant economic consequences for the U.S. and its trading partners, including increased inflation, supply chain disruptions, job losses, and economic contraction. These impacts could be exacerbated by retaliation from affected countries and the complex interplay between global supply chains. Investors should stay informed and prepared for potential market fluctuations as Trump's administration takes office.