On a quiet Monday, President-elect Donald Trump disrupted North America.
On Truth Social, Trump outlined his plan to slap a 25% tariff on all imports from Mexico and Canada over illegal immigration and the flow of drugs. And raise the existing levies on China by an additional 10%. All of this will be enacted through executive orders on the first day of his presidency.
It was a geoeconomic curveball. While many view Trump’s ideas as crazy or question whether he will follow through on them at all (once in power), another angle is being missed. If Trump moves forward with his new tariffs, what happens to North America (and the world)?
The entire structure and design of North America could suddenly be undone.
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Tariffs are no longer a negotiating tactic for Trump, as they were during his first term. Those who thought Trump’s campaign ideas would never become policy should view the new tariffs as proof that Trump means what he says.
By hitting Mexico and Canada, Trump is sending a message to the whole world on everything from trade to defense: “If I can hit two of my biggest trading partners this easily and swiftly, then imagine what I can do to you.”
The deep economic integration around the US further underscores the sheer bravado in going after Mexico and Canada:
Over 83% of Mexican exports and over 75% of Canadian exports go to the US.
More than 60% of US crude oil imports came from Canada. The US imports around 4.3 million barrels of oil from Canada every day.
Mexico supplies 64% of vegetables and 46% of fruits and nuts to the US. Mexico is also the biggest exporter of cars (and car parts) to the US.
In Q1 2024, the US exported $263.5 billion worth of goods to Canada and $80.16 billion worth of goods to Mexico.
The three biggest trade partners of the US are (in order): Mexico, Canada, and China.
Trump is laying the groundwork for a rewrite in how America engages with its two immediate neighbors. And it will be more than painful. North America is not just an integration of three separate economies. In many ones, the region has operated as a single economy revolving around the beating heart (America). Suddenly, the heart wants to separate from the rest of the body.
TRUMP’S GOALS
The tariffs are a warning shot and Trump's opening salvo to shift America’s economic engine away from being import-dependent. It is no secret that Trump wants America to consume what it produces, not what other nations produce.
The tariffs have multiple objectives.
First, they will test how far Trump can “bend” Mexico and Canada.
Over the next two months, Mexico City and Ottawa could dangle retaliation alongside a range of measures, including new trade and immigration policies, to deter Trump’s tariffs, similar to what the EU is doing by proposing to purchase more US LNG. What Mexico and Canada propose/do for Trump will reveal the new “economic red lines” in those nations. Trump will either accept what America’s neighbors do or raise the heat to see what the breaking point is (and how these countries retaliate).
Second, Trump is setting the stage for a complete reexamination of the USMCA, the successor to NAFTA, which Trump himself negotiated and is up for review in 2026.
Even before the USMCA is reviewed, Trump is trying to redesign trade in the continent. In 2026, if the US is engaged in a trade war with Mexico and Canada, Trump can either propose a new trade deal to restore calm or use the trade upheaval as a reason not to sign a new trade deal at all.
Scrapping USMCA will bite everybody, but in particular, countries like Canada. When NAFTA was scrapped, many global companies began to rethink operations in Canada, largely because their only reason for being in the Canadian market was to access the US. Without USMCA 2.0, Trump will force the global business community to pick America over North America.
Third, without mentioning Europe, Trump has put Europe on notice.
What Trump is doing with Mexico and Canada could be small potatoes compared to what happens with the EU, which Trump has rallied against for unfair trade practices (against the US). While Trump is going after Mexico and Canada, the Europeans are invisibly in the bullseye. As Trump swings at Mexico and Canada, he is showing how bloody he is prepared to get across the Atlantic.
Cluey politicians in Brussels are likely aware that very soon, Trump will raise the heat on them in the most shocking ways, and not just in the trade arena. The new tariffs in North America end all ideas of a stable and prosperous transatlantic alliance, like what the world experienced for decades until 2016.
Fourth and lastly, Trump has started the tariffs at 25%. But this is not the end.
Depending on how Mexico and Canada react, Trump could raise the tariffs from 25% to 50% and from 50% to 75%. Instead of starting at 10%, Trump has started at a significant point (25%). Short of Mexico and Canada bending completely, which is unlikely, the new tariffs could rise until those nations dance the way Trump wants. Equally important, while Trump starts with tariffs if his demands are not met, he could expand into other areas, like threatening military action against drug cartels in Mexico itself or drawing in other friction areas, like Canada’s digital tax on American firms.
NEW STRATEGY
As Trump moves forward with the new tariffs, they are part of a broader rethink regarding North America. Why should America be deeply integrated with Mexico and Canada if the US economy falters? What benefit does a unified North America provide America?
Of course, this integration has many benefits for the US. One of the most significant is that America is truly insulated from geopolitics—from two oceans and two allies on each side of the border. However, without deep economic integration, Mexico and Canada could start thinking very differently, like Mexico exploring a new tie-up with Russia.
However, this is far down the line. For now, Trump is not thinking purely of geopolitics; he is thinking purely of economics. What he is unveiling, with the new tariffs, is that the US economy should function independently of Mexico and Canada. This is the new North Star of Trump’s thinking regarding North America. This is why his tariffs can potentially reshape the entire region/continent.
Trump is seeking to decouple from Mexico and Canada step by step. The timeline for this is years, not decades, and to achieve this, Trump will focus on two areas simultaneously.
The first is to shore up American production of critical imports from Mexico and Canada. In particular, Trump needs to boost US production/manufacturing in these critical areas:
Energy
Autos
Agriculture
Critical metals and minerals
Technology
Lumber
Aluminum
The second is to redesign global business footprints.
Trump no longer wants Mexico and Canada to be the “gateways” into America. This makes no sense for Trump from the standpoint of jobs, foreign investment, and overall trade efficiency.
This makes Mexico and Canada simply “middlemen” for the world to access America. And for a president obsessed with cutting down the bureaucracy, middlemen are anathema. In Trump’s mind, the world should sell into America, by producing in America.
From this standpoint, Trump will focus on the following:
Redesigning foreign investment flows away from Canada and Mexico
Ending reexports
Raising tariffs on companies who already have production bases in America
Introducing tariffs on companies who move production to Mexico or Canada
Incentivize businesses through tax breaks and visas to invest in America
The tariffs are just the start of Trump working with two lockstep strategies to fundamentally change how the US economy functions.
In particular, the second strategy, to attract (or punish) global businesses, could mean that Trump will launch more than just a trade war with Mexico and Canada as he pressures global stakeholders to pick America over its neighbors. As Mexico and Canada feel the pain of businesses leaving, foreign investment shrinking, and America’s economy growing, this will also have a corresponding effect on various other areas, like immigration.
IMPACT ASSESSMENT
The North American rewrite is a broader, holistic strategy—and not one that Trump or anyone in his camp has made official.
However, connecting the dots and understanding the bigger picture of Trump's perspective makes it clear that tariffs are not simply a narrow or concentrated event. This is not about negotiation or pressure, although this is how they will be perceived in the short term.
In the immediate future, Trump's tariffs will have various impacts and implications.
To start with, Trump is disrupting Biden in trade, just as Biden disrupted Trump in foreign policy.
Trump’s plans to end the ceasefire in Ukraine have been completely derailed by Biden’s decision to allow Ukrainian “deep strikes” on Russia. This has made the Ukraine-Russia war mercurial.
By inauguration day, the Ukraine war could be more on fire than it has been in a long time, potentially since the invasion began. Now, Trump is responding in kind, opening up a new trade crisis for Biden. This will force the White House to contend with the policies the incoming president is proposing and the fallout on the world stage. Since there is little Biden can do, Trump is also disrupting Biden’s legacy.
Then, there are the reactions from Mexico and Canada, including their retaliation.
Unlike in 2016, when many governments were caught off-guard by Trump’s brash and bold ideas, many across the globe have been preparing for months, identifying ways to retaliate if Trump goes after them. Most likely, Mexico and Canada have done this. The question in front of Mexico City and Ottawa is whether they are at the end of the line (in terms of negotiating with Trump) or the beginning. If either government assesses that negotiations are futile, then a trade war could erupt in North America well before Trump takes office.
In parallel, recent ideas proposed by leading Canadian politicians to eject Mexico from upcoming trade negotiations are in question.
With the new tariffs, Canada is lumped into the same category as Mexico in terms of illegal immigration and the flow of drugs, even though the data tells a different story. In 2023, there were over two million “encounters”* at the US southern border (with Mexico). In contrast, there were around 190,000 encounters at the US northern border (with Canada). Trump knows there is a big difference. But, from the standpoint of redesigning North America, it does not matter. This means that while Canada might want a bilateral trade deal with the US, excluding Mexico, the US is viewing things very differently. Canada’s ideas don’t have life anymore, as America wants to eject both Mexico and Canada from the current trade structures.
*Encounters means people who applied for asylum or tried to enter the US illegally.
Alongside all this, Trump will likely launch more trade action before Inauguration Day.
Trump's trade ideas could spark a set of new “trade fires” worldwide, starting with North America. From a 45% tariff on imports from the EU to threats of trade action against Japan and South Korea, unless they pay up to new warnings/ideas like limits on US foreign investment on nations who are “unfair” to America, the door is now open to Trump setting many balls in motion before he officially becomes President. The US has not functioned this way before. Instead of the “First 100 days” (usually the first stretch for a president to drive policies through), the world is witnessing a pre-presidency chapter underway.
Lastly, as mentioned in the insight “Top 10 Ways President Trump Will Reshape Geopolitics,” social media has returned as the new vehicle of geopolitics and global affairs.
Trump has disrupted North America, not through a press release or a phone call that was leaked to the press. Instead, he posted on his own social media platform.
The path to navigating Trumpworld passes through platforms like Truth Social and X, taking the world back almost a decade to Trump’s infamous “Twitter Diplomacy.” From world leaders to business executives, deciphering Trump now partly hinges on paying attention to what he posts on social media platforms.
ACTIONABLE TAKEAWAYS
This is not about tariffs but about geoeconomics. What Trump is doing with Mexico and Canada goes well beyond renegotiating trade. Trump needs to power the US economy in a new way. This requires shredding the old templates and creating a brand-new economic environment. The tariffs are part of a geoeconomic shift in North America.
This is a message to the whole world about what’s incoming. From the EU to China to Arab states, Trump’s tariffs are a message to every major power that the next four years will be one of immense disruption and change. From trade to security, Trump is going to leverage the power of Washington and the size of the US economy and footprint to change how the world functions.
Whatever distinguished nations are now blurring them. Canada is the same as Mexico. The EU is the same as China. Arab states are the same as Japan and South Korea. Nations are no longer different or distinguished. In Trump’s mind, everybody is the same. And this completely derails the ideas of many countries. For instance, Canada wants a bilateral trade deal with the US that leaves out Mexico because of Mexico’s trade with China. However, in Trump’s mind, Mexico and Canada have little difference.
Global businesses will have to pick sides in North America. Instead of being a bastion of stability and integration, the region could soon descend into trade wars and economic decoupling. Caught in the middle will be global businesses that have to choose between markets that once functioned very differently. And no matter which side they pick, businesses could be on the receiving end of government anger—and not just verbal.
Retaliation matters more than ever. Trump’s plans for North America are long-term. However, in the short term, he is testing Mexico and Canada, and this makes their retaliation/response more significant. What Mexico and Canada do won’t just set the stage for what Trump does regionally. It could define how Trump behaves with the whole world. This makes the new tariffs a global experiment of sorts.
CONCLUSION
The latest comments by North American leaders give the first clues as to what is in store between the US, Mexico, and Canada.
In Mexico, the newly-crowned president, Claudia Sheibaum, has warned that Mexico could impose retaliatory tariffs and has also said the drug epidemic is a problem of the US due to “public health” challenges and “consumption” (of drugs) in America.
In Canada, Trudeau is holding an emergency meeting, including with the leaders of Canadian provinces. In particular, the premier of Ontario, Doug Ford, has said that Canada would have “no choice” but to retaliate against America.
For Trump, the first signs of what’s to come are already visible. Everybody is battering down for a fight.
However, unlike Mexico or Canada, the US can sustain a trade war or economic war indefinitely. For Trump, the American government could subsidize US exporters hit by tariffs in Mexico or Canada as he reorients US businesses to focus on America. But, for Mexico and Canada, a trade war cannot last indefinitely. If US firms begin to shift away from reliance on the Mexican or Canadian markets, those nations lose their negotiating cards.
Of course, some might question the idea that US businesses could become less reliant on Mexico or Canada, and that too without significant cost to American consumers. However, the speed at which Western firms left Russia or are de-risking from China points to how quickly economies can shift and realign once governments give the order.
That is what is forming now for Mexico, Canada, and the world.
As Trump signs new rules into law, everybody will have to move at lightspeed. What many thought to be impossible could materialize in just a few years and the landscape that many bet on could be forever changed.
North America has functioned a certain way for decades. Three economies have stood shoulder-to-shoulder due to their economic and geopolitical reliance. The new tariffs seek to end this. The new North America could be divided, disconnected, and divergent.
As Trump’s tariffs take effect, North America will be rebuilt.
-Abishur/Mr. Geopolitics
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