What is Going on With Tariffs?
Just over three years ago, Russian forces marched into Ukraine and began an unwanted military conflict. Today, the United States government started an unwanted economic battle by pushing tariffs onto supposed allies.
At midnight on February 4, 2025, the Trump administration was set to begin enforcing tariffs of 25% on almost all Canadian and Mexican goods that cross the borders into the U.S. The lone major exclusion was a 10% tariff on imported energy. Additionally, tariffs of 10% have also been issued on any Chinese goods imported to the U.S.
These actions were presented as measures to deter the rapid influx of drugs into the U.S.; a means to slow immigration; and a method to “encourage” production of goods in the U.S. Canada and Mexico responded in kind with tariffs on American goods imported into their countries. Canada has set some monetary goals and stated that tariffs may rotate among goods and industries.
Tariffs as a Negotiation Tactic?
Why the sudden use of tariffs by the U.S.? History has shown that President Trump claims to, and often uses, any negotiation means necessary to achieve his goals. In fairness to the President and the world, his rhetoric has called for tariffs for months. From that perspective the use of tariffs should come as no shock.
Looking at the Bigger Picture
However, we shouldn’t look at these tariffs in isolation. In addition to speaking about tariffs, President Trump has also made multiple comments about wanting to take back the Panama Canal, obtain Greenland, and even usher in Canada as the 51st state. Viewing these actions in their totality, it appears that the newly minted Trump regime wants to have a revival of American imperialism along with a “made in America” mantra. Or is this merely the age-old negotiation tactic of “start high”?
Most of us have heard the opinions and editorials stating these actions will never happen, or that they are merely the ravings of an egomaniac. Our purpose today is not to make a prediction about whether these events will occur, but rather to point out a few relevant facts:
- Tariffs were discussed for months and have come to fruition.
- This action (along with others) could imply other rhetoric from this administration could become reality.
- The impact on energy markets could be very chaotic with logistics becoming even more important in the near future.
How Will This Impact the Energy Market?
It is on this last point we want to comment. Recently, the Wall Street Journal highlighted the fact that many other global nations are expanding their trade relationships while excluding the United States. The EU finally completed a 25-year negotiation with major South American nations. The BRICS group (Brazil, Russia, India, China, South Africa) has been adding more nations to their consortium and now represents over 40% of the world’s population base. Canada and Mexico are already looking for other nations to purchase their oil supplies.
These ripple effects will have people in the energy industry supply chain searching for more cost-effective ways to move product from point A to point B. Tariffs are at the core, another product cost. If you can supply your product with a lower overall cost, then someone will purchase it. These actions are happening now and will become more intense the longer tariffs remain in place.
Conclusion
But will the tariffs remain in place OR will they even go into effect? This takes us back to our earlier question regarding if these tariffs are part of a broader push for territory or a negotiation tactic? On February 3rd, both Mexico and Canada made last minute agreements to put a military presence at their nations’ border to the U.S. in exchange for a 30-day delay of the tariffs. The military presence and additional 30 days will allow for more negotiations. Hopefully, further negotiations will ensure the tariffs are not put into effect.
The Trump administration rhetoric has created chaos within the energy supply chain, but it also appears to be merely a means of negotiation. If the neighbors to the north and south of the U.S. can appease the Trump administration, then tariffs may not ever become reality.
Current Events – February 2025
By JD Buss
