Trump tariffs and its effects

Donald Trump's new tariffs on imports from Canada, Mexico and China could reduce US exports by 22%. Canada and Mexico would also be massively affected. In the event of countermeasures to the US tariffs, Canada would face a 28 percent drop in its total exports and Mexico a 35 percent drop. “While China can more easily divert trade away from the US, Canada and Mexico are much more closely tied to the US due to their geographical location,” says Lisandra Flach, Director of the ifo Center for International Economics. 

Smallest impact for China

The impact would be smallest for China (decline of 3.8 percent). Germany's total exports would increase slightly as a result of the US tariffs (growth of 0.5 percent). “The effect on German exports is double-edged: on the one hand, US tariffs would reduce demand for German goods in the Canadian and Mexican economies. On the other hand, German exports to the USA would displace Canadian, Mexican or Chinese exports. However, due to Trump's threats to impose tariffs on US imports from the EU in the near future, the chances of such export growth appear to be very slim,” says Flach.

Decline in industrial value added

In the medium term, Canada would have to expect a 14% decline in industrial value added. In Mexico, it would fall by 13 percent. In China, it would be just under 1 percent. This is shown by calculations by the ifo Institute, taking into account countermeasures taken by the affected countries in response to the US tariffs.

Overview

Without countermeasures to the US tariffs, the slump in industrial value added in Canada would be slightly higher (15%). In Mexico, industrial value added would fall by just under 10 percent. The decline in total exports would also be slightly lower without countermeasures: 17 percent for Canada, 21 percent for Mexico and 14 percent in the USA itself. Without countermeasures, the decline in exports for China would amount to 2.7 percent. Germany's exports would increase minimally, by 0.2 percent.

Different scenarios

The effects of US tariffs on Canada, Mexico and China were analyzed using the ifo trade model based on two scenarios. In the first scenario, 25 percent tariffs are imposed on Mexican and Canadian products, with the exception of energy-related sectors from Canada, which are subject to tariffs of only 10 percent. In addition, Chinese products are subject to 10 percent tariffs. The second scenario (“dollar-for-dollar scenario”) considers a situation in which Mexico, Canada and China respond with countermeasures.

Source: https://www.ifo.de/en/press-release/2025-02-04/trump-tariffs-reduce-us-exports