Trump Threatens to Blow Up USMCA Over Open Borders & Fetty

He's baa-aack! Mexico and Canada will be hit with 25% tariffs if they don't comply. What other threats can be made? Plus, Smarty Pants talks Bessent, tariffs and inflation.

Kenneth Rapoza

and

Vladimir Signorelli

Nov 26, 2024

It’s about damn time, as Lizzo might say.

Trump threatened both Mexico and Canada with 25% tariffs after hours on November 25 if they don’t stop the flow of migrants coming across the border and, in Mexico’s case, stop the flow of illicit drugs, namely fentanyl (fetty).

Here is what he said, if you haven’ seen it already.

If I were the Trumpster, I’d give them a time limit of 60 days from Jan. 20 to reach certain goals, like no border crossing and Customs seizing 50% less fentanyl at the border from “newcomers” and generally stupid people versus, say, the amount of kilos seized a year ago. Maybe add the arrest or kill of top members of the main fetty dealers in Jalisco Nuevo Generacion and the Gulf cartels. How about that? If they fail to reach those objectives, crank up the volume and add a 25% tax on all Mexico-bound remittances.

The iShares MSCI Mexico (EWW) and MSCI Canada were down in the after-market and pre-market hours, while the SPY was up.

Let’s rename the U.S. Mexico Canada Agreement the U.S. Manufacturing and Competition Agreement, as a colleague of mine referred to it last night “over cocktails”.

Vlad Signorelli, founder of the Jude Wanniski macro-investor research firm Bretton Woods Research in Jersey, is fine with the 25%.

“I think it’s a positive. Basically, there’s a new sheriff in town and he is cutting out the excesses of the Biden administration which was too lax on immigration and immediately rescinded the Remain in Mexico policy from Trump. It was almost like Biden was following orders from MSNBC and United Nation NGOs. I’m glad he is making this threat preemptively; it lets markets know what to expect. I think that action alone will slow down the flow. Mexico and Canada will do whatever they can to save their economies and if that means they have to reduce lawlessness and illegals, well, that’s a win! I’m very positive on the whole, but I’m not buying Mexico on the dip. I think Trump is going to be a deflationary headwind for commodity economies, and Mexico is still a lot of that and that might make them less interesting.”

The USMCA comes up for renewal in two years, while Trump is in office.

Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland said the U.S. was an important trading partner and that they work hard on fentanyl flow and migrants, which I believe they do a better job of than Washington.

Doug Ford, the premier of Ontario, Canada's most populous province, said the tariffs would be "devastating to workers and jobs." But he also recognized that migrants are either leaving the U.S. for Canada, or flying into Canada and crossing into New England and upstate New York. “The federal government needs to take the situation at our border seriously. We need a Team Canada approach and response – and we need it now,” Ford said.

British Columbia premier David Eby said “Ottawa must respond with strength!”

Mexico president Claudia Sheinbaum Pardo said she would retaliate with similar tariffs, meaning she would blow a hole in the country’s auto market, which I think accounts for the bulk of their manufacturing base.

Independent journalist Larry Taunton says that Mexico doesn’t like the border chaos either. These people are coming up in caravans through Latin America, crossing Mexico, and giving drug cartels a way to diversify income streams by charging to smuggle people into the U.S. He said that Mexican officials were told by the Biden administration to allow the caravans in, and that the U.S. intelligence agencies, probably FBI or DEA, not sure, also told them to let them in. Verifying that is above my pay grade. But if Taunton is correct, now is the time for Sheinbaum to throw under the bus all of those people in the Biden administration and the NGO groups that facilitated it all.

None of this is good for U.S. Mexico relations under Trump. The risk to upending USMCA is real.

Mexico needs to seal its border, destroy Salinas, Jalisco and Gulf cartels like Colombia did with the Medellin and Cali cartels, or face either 25% tariffs or 25% fees on money transfers from Western Union. Remittances into Mexico were over $62 billion last year, which is more than foreign direct investment into the country. The status quo cannot continue. Let’s see if the tariff threat works. It has worked before.

Thanks for reading Double Plus, by Kenneth Rapoza! This post is public so feel free to share it.

And now a word from Smarty Pants in the Faculty Lounge…

“The market is loving Treasury pick Scott Bessent. The ten-year yield is down. Gold is down. And the stock market is up. Trump likes a strong Wall Street. But he also likes tariffs, which means he wants to protect Main Street at the same time. Trump wants to please Wall Street and the economic populists that have expanded his base. Well, Bessent told Larry Kudlow this weekend that ‘tariffs are not inflationary’. Remember, this is one of the ways the Harris campaign tried to distance itself from Trump economically. Trump was for tariffs. Harris was against them even though Biden continued Trump’s China tariffs in May for another four years. Bessent told Kudlow, ‘inflation comes either through increasing the money supply or increasing government spending.’ That’s a better analysis than most. But it is even better to state that tariffs designed to increase domestic production can be deflationary because you increase supply.”

The Post-Globalist West

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