\n<\/p>\n
When the United States signed a free-trade agreement with Canada and Mexico more than 30 years ago, the premise was that partnering with two other thriving economies would also benefit America.<\/p>\n
This week, President Trump abruptly scrapped that idea. He imposed a sweeping 25 percent tariff on Tuesday on the roughly $1 trillion of imports that Mexico and Canada send into the United States each year as part of that North American trade pact \u2014 before quickly walking them back. On Thursday, the president signed executive orders suspending the tariffs on Canada and Mexico for goods that trade under the rules of the U.S.-Mexico-Canada Agreement, which is much of the trade that crosses North American borders.<\/p>\n
If the tariffs had been maintained, they would have significantly raised costs for Canadian and Mexican exports, undermining their economies and likely tipping them into recession.<\/p>\n
Mr. Trump\u2019s flirtation this week with unwinding decades of economic integration<\/a> raises big questions about the future of North America and the industries that have been built around the idea of an economically integrated continent. While some factories in Canada and Mexico might have moved to the United States to avoid tariffs, the levies would also have raised costs for American consumers and manufacturers that have come to depend on materials from their North American neighbors.<\/p>\n<\/div>\n<\/div>\n \u201cThis is a day where the United States stopped seeing trade as force for mutual benefit, and began seeing it as a tool of economic warfare,\u201d said Edward Alden, a senior fellow at the Council on Foreign Relations. He added that the levies were \u201ca fundamental attack on the economic well being of our closest neighbors.\u201d<\/p>\n While Mr. Trump suspended his tariffs on Thursday, any relief could be short lived. The president has said that he expects to issue more tariffs on Canada and Mexico next month, when he announces what he is calling \u201creciprocal\u201d tariff measures<\/a>.<\/p>\n<\/div>\n<\/div>\n Mr. Trump defended his tariffs in an address to Congress Tuesday night, saying they were \u201cnot just about protecting American jobs \u2014 they are about protecting the soul of our country.\u201d<\/p>\n \u201cTariffs are about making America rich again and making America great again, and it is happening and it will happen rather quickly,\u201d he said. \u201cThere will be a little disturbance, but we are OK with that. It won\u2019t be much.\u201d<\/p>\n<\/div>\n<\/div>\n Economists argue that tariffs could cause major disruptions in Canada and Mexico, because they are so reliant on the U.S. economy. Trade accounts for about a quarter of U.S. economic activity, compared with roughly 70 percent for Mexico and Canada. Canada and Mexico both send about 80 percent of their exports to the United States, while only about a third of U.S. exports go to Canada and Mexico collectively.<\/p>\n Tony Stillo, director of Canada economics at Oxford Economics, estimated that a 25 percent tariff on most of its products would plunge the Canadian economy into a recession this year, push consumer price inflation to nearly 4 percent above the previous year and cause layoffs that would lift the unemployment rate above 8 percent.<\/p>\n \u201cTrump\u2019s trade war will seriously hamper U.S.-Canada relations and severely upend North America\u2019s highly integrated production and supply network, possibly with lasting impacts on both economies,\u201d he said.<\/p>\n Marcus Noland, executive vice president and director of studies at the Peterson Institute for International Economics, estimated<\/a> that a 25 percent tariff on Mexican exports could reduce Mexico\u2019s economic growth about two percentage points, potentially resulting in large-scale factory closures and job losses.<\/p>\n Economists caution that Mr. Trump\u2019s unpredictable approach to trade \u2014 where he has announced tariffs, delayed then, enacted them and then suspended them all within a few weeks \u2014 is also likely to chill investment, as companies wait to see what the terms of trade will be.<\/p>\n<\/div>\n<\/div>\n Randy Carr, the chief executive of World Emblem, which manufactures labels and emblems, including for U.S. military uniforms, FedEx drivers and the National Football League players, said the tariff threats had caused him to rethink his plans for the next three years, and pull back on all spending on expansions and hiring.<\/p>\n \u201cWe\u2019re sitting on a lot of projects that we can\u2019t otherwise do as a result of just the threat of the tariff,\u201d he said. \u201cEveryone\u2019s sitting on their hands waiting for the next thing to happen.\u201d<\/p>\n Mr. Carr said the tariffs had also given him a push to set up a secondary factory in the Dominican Republic, in addition to a factory in Mexico. He said that he would consider bringing manufacturing to the United States if the tariffs stayed in place, but that it would take time and significantly raise the cost of his products.<\/p>\n As a bigger economy, the United States is more insulated to trade than Canada and Mexico. But slowing America\u2019s biggest export markets would hurt U.S. growth, too, and it would cause more acute pain among communities that depend on those markets. Canada and Mexico are the biggest export markets for many American farmers.<\/p>\n U.S. industries that depend on raw materials from the neighboring countries would also see costs rise, and some of those businesses could shut down as tariffs erase their profit margins. Analysts at S&P Global Ratings said on Thursday they estimated the tariffs Mr. Trump had proposed on Canada and Mexico would decrease U.S. gross domestic product 0.6 percent over the next 12 months, and decrease Canadian and Mexican G.D.P. 2 to 3 percent from their previous forecasts.<\/p>\n<\/div>\n<\/div>\n The tariffs also would have effectively shattered a trade deal Mr. Trump himself signed in his first term. When he signed that trade deal in 2020<\/a>, Mr. Trump called it the \u201clargest, fairest, most balanced and modern trade agreement ever achieved\u201d and a \u201ccolossal victory\u201d for farmers and factory workers. Mr. Trump\u2019s willingness to disregard that act could cause companies to clamp down on investments \u2014 and turn some of the substantial investments they previously made under the pact into losses.<\/p>\n In a call with the president Tuesday, America\u2019s major automakers told<\/a> Mr. Trump that putting tariffs on cars and parts from Canada and Mexico would effectively erase all of their companies\u2019 profits by imposing billions of dollars of new costs, according to a person briefed on the call.<\/p>\n The tariff threats have also decimated any trust between the governments involved. In response to U.S. requests, Canada tightened its visa rules and deployed personnel, equipment, helicopters and drones along the border. Mexico sent troops to the border<\/a> and cracked down on drug cartels, including delivering cartel operatives into U.S. custody.<\/p>\n