Trump 2.0: Day 1 Mexico/China tariff threats unlikely to materialize

• President-elect Donald Trump announced this evening that he will be imposing on his first day in office a:
  • 25% tariff on Mexico and Canada (here).
  • 10% tariff on China (here).

• On Mexico (and Canada):
  • We (continue to) believe that Trump will not implement these tariffs on day 1, as:
    • The pain to the US economy would be too great (as Trump himself recognized during his first term, in walking back his then-similar threat).
      • On a related, though not identical, note, his inclusion of Canada in the same ‘batch’ as Mexico strikes us as a sign that he may not have ‘that clear’ of a plan to follow through.
    • If Trump’s goal was to implement such a tariff – rather than extract concessions – he would not have announced it two months ahead, which gives Mexico time to act upon his threats…
      • And we have long expected, and continue to expect, that Mexico will take forceful actions to address Trump’s concerns.
    • One hypothesis for tonight’s Truth Social posting is that Trump is trying to counterbalance the ‘risk’ to his image of appearing too ‘dovish’ in the aftermath of his nomination of financial posterchild Scott Bessent, and associated news cycles.

• On China:
  • We have previously laid out two views about the risk of tariffs on China in the early days of the second Trump administration:
    • 1) If Trump did anything to China early on, it would be exactly in line with his threat tonight:
      • “‘Day 1’ trade action by the Trump administration against China will be limited (c. 15% tariff increase at most), and […] nothing resembling a 60% blanket tariff” (here)
    • 2) And/but, more likely than not, he would first give Chinese President Xi Jinping a chance to avoid said-tariffs by ‘redeeming’ himself:
      • “We expect President-elect Donald Trump will give China ‘one last chance’ to fulfill its Phase One trade deal commitments before snapping back associated (or comparable) tariffs” (here)
  • Given tonight’s threat, there are two ways of looking at China’s ‘odds’ of avoiding such (c. 10%) tariffs:
    • Pessimistic, if one is focused on the fact that:
      • I) Trump is ‘already’ attacking China.
      • II) Trump is attacking China here in regards to fentanyl, which means he may still also attack it for its failure to comply with the Phase 1 trade deal, which would only compound upcoming tensions.
    • Optimistic, if one hypothesizes that…
      • The president-elect is attempting to give China a chance at making early concessions (on fentanyl) that could help Beijing build traction toward dialogue that could also involve (potentially constructive) Phase 1-related conversations – as China has already been signalling it would like to.
  • We lean toward the latter, and continue to believe that Trump will ‘give Xi a chance,’ which means that the president-elect’s tariff threat will not come into force on day 1.
  • To be clear, however: as we have noted many times before (e.g. here, here), our view that early trade action against China will likely be very modest is not an indication that we have ‘dovish’ views of President-elect Trump’s overall (trade) policy plans for Beijing. Indeed, despite the restraint we expect him to show on day 1, we:
    • Do believe China will face a c. 10-15% in 2025; and we
    • Expect Beijing will be targeted with far higher (e.g. 100%) targeted tariffs in the ensuing years of the second Trump term.​​​​​