The Rundown - Deep Dive: What Trump's Tariff Tactics Mean for the Economy

Episode Date: November 30, 2024

President-elect Trump isn't in office yet but is already threatening tariffs against key trading partners: Mexico, Canada, and China. As tensions rise, industries from automobiles to agriculture are bracing for potential price hikes and disruptions. We explore how these tariffs could affect everything from grocery bills to gas prices, and why U.S. businesses are rushing to import goods before January. Tune in to understand what’s at stake if these trade wars escalate and what it could mean for consumers and the economy. The content of the video is for general and informational purposes only. All views presented in this show reflect the opinions of the guest and the host. You should not take a mention of any asset, be it cryptocurrency or a publicly traded security as a recommendation to buy, sell or hold that cryptocurrency or security. Guests and hosts are not affiliated with or endorsed by Public Holdings or its subsidiaries. You should make your own financial and investment decisions or consult respective professionals. Full disclosures are in the channel description. Learn more at Public.com/disclosures. Past performance is not a guarantee of future results. There is a possibility of loss with any investment. Historical or hypothetical performance results, if mentioned, are presented for illustrative purposes only. Do not infer or assume that any securities, sectors or markets described in the videos were or will be profitable.

Welcome back to the rundown for a weekend deep dive. In today's episode, we dive into one of the most discussed economic topics right now, tariffs. Tariff talk has definitely ramped up since Donald Trump won the presidency, and things really picked up this week when the president-elect threatened to impose a 25% tariff on all imports coming from Mexico and Canada on his first day in office. He also threatened an additional 10% tariff on China until drugs and migrants stop coming over the border. into the U.S. It looks like Donald Trump is ready to play a hard ball with the U.S.'s top three trade partners,

and that's casting a wide net of uncertainty for industries like auto manufacturing, oil, and electronics. So that's what we're talking about today. What's at stake if Donald Trump falls through with the tariffs and what impact will these tariffs have on things like your grocery bill or the cost to fill up your car? All right, let's dive in. I want to start by first framing the situation here. Mexico, Canada, and China are the U.S.'s top.

three trading partners. As of September of this year, they collectively account for 42% of all U.S. imports. China used to be the U.S.'s top trading partner. Mexico and Canada overtook China because they had been left unscathed by Trump's tariffs during his first term. Also, the U.S. has spent decades building a tightly intertwined relationship with its northern and southern neighbor. It all started with NAFTA back in 1994, which then got updated to the U.S. MCA in 2020. Tariffs on Mexico and Canada could complicate these trilateral trade alliances. And companies are already starting to freak out and prepare for these potential tariffs. See, the way tariffs work is when a company imports something from a country that has tariffs imposed

on it, the company has to pay a tax to the U.S. government. It's the importing company paying the tariffs, not the country sending the goods. And that's why companies are now scrambling to import as much stuff as they can before Trump takes office in January. According to the National Retail Federation, companies are racing to import goods, with import volumes expected to rise 14% year over year in November, compared to the 1% increase that was previously estimated prior to the election. There is a lot at stake if the U.S. were to engage in a trade war with Mexico and Canada, especially for the oil and automobile industries.

Let's talk about Canada first. The top U.S. import from Canada, surprisingly, isn't maple syrup. It's oil. A record 4.3 million barrels were imported from Canada per day over the sun. summer, which is more than half of U.S. crude imports. Canada is also the largest foreign supplier of lumber to the U.S., and tariffs could lead to tighter supply in higher prices. But like with everything, there are tradeoffs. Most people don't know this, but there was already a tariff on Canadian lumber. In fact, the Biden administration doubled those tariffs of 14.5% in August

in an effort to address with the U.S. views as unfair trade practices. And that is playing a role in building up the U.S. lumber industry. The southern U.S. is actually on pace to passed Canada for softwood lumber capacity for the first time in about 55 years. So that kind of serves as a case study for possible long-term effects of tariffs. And it also shows that there are trade-offs. Tariffs could be great for building up industry in the U.S. like it's doing for the U.S. lumber industry. But on the flip side, it could hurt other industries like homebuilders. The National Association of Home Builders has fought against lumber tariffs for years because of the impact on housing affordability and it's called on Biden to suspend these tariffs on Canadian lumber.

So if Trump introduces additional tariffs on Canada, we'll have to see how it all plays out with Canadian oil and lumber. Now let's talk about our southern neighbor because the U.S. imports a ton of stuff from Mexico. In fact, the Mexican government estimates the total trade with the U.S. amounts to about $800 billion annually. And the auto sector is one of the engines driving that trade. In 2023, vehicles and vehicle parts imported from Mexico accounted for nearly $80 billion, which is a 51% increase from 2017. U.S. automakers, including Ford and General Motors, have manufacturing plants in Mexico. According to global data, GM is expected to import more than 750,000 vehicles from Mexico and Canada this year, with over half of those imports coming from Mexico.

Beyond just cars, the grocery aisle could take a hit as well. Mexico exported over $44 billion in fruit products to the U.S. in 2023. This was kind of surprising to me, but about two-thirds of all U.S. vegetables and half of fruit and nuts come from Mexico. And then don't forget about avocados. Last year, the U.S. in Mexico traded $3 billion worth of avocados. The two countries are pretty dependent on each other when it comes to this fruit. Nearly 90% of avocados consumed in the U.S. come from Mexico while Mexico relies on the U.S. as its primary market. So if these tariffs go through, the cost for an extra scoop of guac might just go up. And then don't forget about beer and tequila because these tariffs could be

an ultimate bus kill. Mexico accounts for 83% of beer imports to the U.S. largely due to to the popularity of brands like Corona and Modelo, both are owned by Constellation brands. And Modelo in particular overtook Bud Light as the best-selling beer in the U.S. last summer, ending a 20-year rain at the top for Bud Light. And this shift is part of a broader trend that's been building for over a decade. From 2013 to 2022, U.S. beer imports from Mexico doubled. Mexico, in turn, is heavily reliant on the U.S. market, shipping far more beer to the U.S. than any other country.

Like in 2022, Mexico exported seven times as much beer to the U.S. as it did to its second largest importer, which fun fact is the Netherlands. Honestly, wasn't expecting that. And as for tequila, U.S. imports of Mexican tequila and mescal totaled $4.7 billion last year. That's up 160% from 2019. Tariffs might make margaritas the new luxury cocktail. Now let's talk about China because they're kind of used to the whole tariff thing at this point. They first got hit with tariffs back in 2018 during Trump's first. term in office, and it's had a notable impact on Chinese imports to the U.S.

China's total share of U.S. imports has declined from 21.4% pre-tariffs to 13.5% as of September of 2024. The products that have been hit the hardest are semiconductors, leather bags, funny enough, and laptops. China's economy isn't as dependent on U.S. exports as Mexico or Canada. Only 15% of Chinese exports go to the U.S. compared that to 80% for Mexico and 78% for Canada. And I think China is going to continue to work to reduce the reliance on U.S. exports.

Because the U.S. has maintained a tough stance on China even after Trump left office in 2020. President Biden upheld the $350 billion in tariffs on Chinese goods, and in September he escalated tariffs on electric vehicles to 100%. On top of that, tariffs on other products such as solar cells and batteries were raised as part of an effort to strengthen the U.S. green energy supply chain. But China is still a very attractive spot for U.S. companies for cheap products. China is the cheapest source for 29% of products in the U.S. well ahead of any other country.

And China's ability to produce goods at a lower price is difficult to imitate. The sector that's going to be the hardest for U.S. importers to find competitive pricing will be footwear, metals, and advanced technology such as semiconductors. I mean, Apple still makes a ton of products in China today. So if China gets hit with even more tariffs and these companies can't find alternative places to manufacture at a cheap price, they might just end up paying the tariffs. And those costs might end up being passed on to the consumer. So that's where we are today.

There are still a lot of unknowns for how the tariffs standoff will play out with the U.S.'s Top Trading Partners. What we do know is that Trump loves tariffs. He's been talking about it his entire time on the campaign trail. He's done them before in the past. He might continue to impose them again. Or it could just be a threat, you know, a negotiation tactic. Or the deal.

But if these tariffs go into place, especially on Canada and Mexico, the end of the end of the impacts could be wide-ranging. On one hand, it's often the case, tariffs end up being a tax on consumers. Deutsche Bank estimates between 50 to 75% of tariffs will be passed along to consumers. And Walmart already said in their earnings call a couple weeks ago that tariffs would cause prices of products to go up. On the flip side, it could result in more industries being created in the U.S., like we've seen with the lumber industry. But personally, I think it's a little unrealistic to expect all industries to be moved back to the U.S. It just costs more to make stuff in the U.S. Like I said, there are tradeoffs with everything.

Well, all right, guys. That's it for this week's weekend deep dive. Hope you guys enjoyed today's episode. If you did and you have like eight seconds, consider leaving us a comment on Spotify, vote in today's Spotify poll, leave us a rating. All that engagement really does help us out and it helps other people find this show.

And if you have any suggestions on a future topics that we should cover in a deep dive episode, let us know in the comments as well. Thank you guys so much for spending a part of your weekend with me. Shout out to Mike for all the help behind the scenes and we'll see you guys back. here on Monday.