When President Donald Trump introduced his “Liberation Day” tariffs in April, numerous economists forecasted that Americans would soon face significant price hikes. Although inflation has increased over the past eight months, it remains significantly below the levels that were initially anticipated. A significant factor contributing to this situation is that a vast array of products, ranging from clothing to toothpaste, manufactured by America’s primary trading partners, Mexico and Canada, have been free from duties, provided they adhere to the stipulations of a trilateral free-trade agreement referred to as the United States-Mexico-Canada Agreement, which was signed by Trump during his initial term. However, the agreement that succeeded the North American Free Trade Agreement is set for a review in July, and indications suggest that Trump is expressing a desire to withdraw. If that occurs, it is probable that it would lead to a surge in higher prices from which Americans have thus far been protected.
“We’ll either let it expire or we’ll maybe work out another deal with Mexico and Canada,” Trump stated. US Trade Representative Jamieson Greer articulated in a Politico interview, “the reason why we built a review period into USMCA was in case we needed to revise it, review it or exit it.” The president’s position may evolve as we approach July, as indicated. “Discussion about what hypothetical trade deals that have not yet been negotiated could look like is meaningless speculation,” spokesman Kush Desai stated. Before Trump’s second term, imports from Mexico and Canada effectively entered the United States without duties, regardless of their compliance with USMCA, due to the absence of tariffs. However, Trump implemented tariffs of 25% on products from Mexico that did not comply with USMCA and 35% on those from Canada.
In contrast to those two countries, all other nations have faced increased tariffs on their exports to the United States over the past year, with exceptions made for specific goods. At one juncture, those rates reached a peak of 145% in the context of China. Before Trump’s second term, imports from Mexico and Canada effectively entered the United States without duties, regardless of their compliance with USMCA, due to the absence of tariffs. This elucidates the fact that 38% of imports from Canada and 49% of imports from Mexico adhered to USMCA standards in the previous year, as per data from the US Commerce Department. As of August this year, those shares increased to nearly 86% of imports from Canada and 87% of imports from Mexico. “Increased compliance with USMCA has shielded billions of dollars’ worth of imports from the new tariffs,” stated Erica York.
“Americans would face significantly higher prices,” she said, if USMCA exemptions weren’t in place. “Such a scenario would result in diminished wealth for American workers and reduced competitiveness for American businesses, and all without justifiable cause.” Consumer electronics and clothing represent categories of goods that may be particularly susceptible to price hikes, as the United States has increasingly depended on its neighboring countries for these products. Furthermore, supply chains among the three nations have become increasingly interconnected, with components frequently traversing the American border several times throughout the assembly process. This implies that apparel, electronics, and other domestically produced goods may be affected by the potential increase in tariffs on Canadian and Mexican products, which could ultimately be transferred to consumers. “USMCA serves as a fundamental element of North America’s electronics manufacturing ecosystem. Terminating it would disrupt the production system that US manufacturers rely on, leading to longer lead times and higher input costs,” stated Chris Mitchell. “Such pressures would inevitably result in increased prices for automotive, consumer, and medical electronics.”