Trump 2.0: Trade: February 1 likely still just threats

• This note serves as a recap of our expectations for US President Donald Trump’s February 1 tariff threats, similar to our pre-inauguration recap on January 14.
  • President Trump has threatened:
    • 25% tariffs on Mexico.
    • 25% tariffs on Canada.
    • 10% tariffs on China.

• Our expectations are:
  • For Mexico:
    • No tariffs will be implemented against Mexico on February 1, nor in the foreseeable future thereafter.
    • President Trump has several options:
      • Impose 25% tariffs.
      • Impose sector-limited tariffs (e.g. on steel and aluminum).
      • Threaten 25% tariffs with a future implementation date.
      • Of these three, we believe the third is most likely, and we would argue it would amount to little more than a continuation of the same threat he has waged since November 25 – even if it is now papered.
  • For Canada:
    • We hold three views:
      • Canada will suffer tariffs in the coming weeks and months.
      • Those tariffs will be sector-specific ‘only’.
      • Narrowly, we expect them to come later than February 1.
  • For China:
    • No tariffs will be implemented against China on February 1, nor for the following 3-6 months.
      • Once tariffs are implemented, they will likely take the form of:
        • A broad c. 10 percentage point tariff increase.
        • Significantly higher, but backloaded, sector-specific tariffs.