The Peter Zeihan Podcast Series - Trump Tariffs Part 2 - Canada and Mexico || Peter Zeihan

Episode Date: December 5, 2024

Unlike Trump's proposed tariffs for China, the tariffs heading for Canada and Mexico can be viewed as leverage (or bargaining chips) to address issues amongst our North American trade partners.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/trump-tariffs-part-2-canada-and-mexico

All right. We're trying to drone today. Today is part two of the Trump's tariff series. Yesterday, we covered China and discussed how what Trump is achieving there is an industrial reorganization. And terrorists may actually, in the right policy combination, work for that. That's very different from what's going on with Mexico and Canada. Mexico and Canada are number two and number one trading partners. Collectively, if the tariffs that Trump says he's going to put on actually happen and there is no retaliation, We're looking at something along the lines of roughly a $1,500 hit to every man, woman, and child in the United States. So potentially big. It'll hit some industries more than others.

Automotive is definitely the one that will hit the most because there's a lot of products, especially in U.S. Mexico trade, where intermediate products go back and forth and back and forth and back and forth across the border. And the administrative cost of imposing a single 25% would be huge, would be easier just to do every time something crosses. So all of a sudden you're adding $5 to $10,000 to the cost of a vehicle that is made in North America. So it's an inflationary issue. It's an employment issue. It's an industry issue. And there is no version of the future of the United States that is post-China that does not involve Mexico and Canada very, very strongly. And keep in mind that Trump put his name on the most recent trade deal with both countries.

That's NAFTA, too. So potentially very, very, very big. However, what Trump is attempting to achieve with Mexico and Canada is not the same as what is trying to achieve in China. In China, he's actually trying to move industry. He doesn't seem to have a problem with the manufacturing supply chains we have here in North America. His concern is he wants to use the lever or the hammer of trade and tariffs to get progress in his view on immigration, on migration, and especially on fentanyl. And so basically it's an if this, then that. Now, that's not a crazy idea.

In fact, there is a couple of reasons to expect it to work. First off, that's the whole concept of globalization in the Cold War, is that the United States used its Navy to patrol the global oceans to force open international trade, including our own market. And we would do this for you if in exchange you would allow the United States to write your security policies. And that was the policy right up until 1992. Now, we got away from that in the post-Cold War era where free trade became a goal in of itself. Trump basically wants to dial the clockback 35 years and start renegotiating what security policies mean to include migration and fentanyl.

And the idea that you can do that makes a lot of sense because the United States is the only large, rich, consumption-led economy on the world. And that means that the U.S. president, whoever that happens to be, has a huge amount of negotiating room to get what he's, He wants whatever the issue happens to be. So you want access to this market? That's fine. You have to do X, Y, Z, A, B, N, C, and you have to do that maybe first. The question is time frame. In the case of Mexico, it's probably going to work because it's worked before.

In Trump's first term, he tried something very similar in migration issues and forced a deal with the then-President Lopez Obrador. We now have a new president, Claudia Scheinbaum, who is much better at Bath than her predecessor. So it's just a question of how these two ultimately do or do not get along. In the case of Canada, it's probably going to be a little bit more sticky. The ruling government of Justin Trudeau is a minority government. It is in trouble. It is not popular. And it faces election next year.

And capitulating to Donald Trump is generally not a great way to win accolades with leftist supporters. So we might actually see relations with the United States between the United States and Mexico stumble forward in its own way and relations between the United States and Canada suffer. But a much bigger issue is whether or not what Trump is wanting to do with Mexico and Canada can actually work. There are ways that Mexico in particular can cooperate with the United States on migration. That has happened in the past. I'm sure it will happen again in the future. But fentanyl's different. Trump's understanding of fentanyl is that the precursor materials come from China,

whereas the turn to finish drugs in Mexico and then they cross the border of the U.S. And that's accurate. But it's an incomplete understanding because fentanyl is different from cocaine. Cocaine is a very specific economics and geography of production and transport than fentanyl does.

And so to understand the pros and cons of what Trump is trying to achieve with trade policy, we need to look at the supply chain for fentanyl and you can see then how things might work a little bit differently. That's going to take a whole other video. We will tackle that. that tomorrow.