GLOBAL MACRO: Canada & Mexico Very Vulnerable To US Tariffs, Response Likely
On the first day of his second term, President Trump has said that he thinks a 25% tariff on imports from Canada and Mexico will be enacted from February 1. This has driven a sharp increase in the US dollar (USD BBDXY +0.4%) and seen CAD (-0.9%), MXN (-1.1%) and AUD (-0.7%) sink against the greenback and equities lower. This is bad news for Canada and Mexico but intense negotiations are likely over coming days.
- Increasing protectionism can easily lead to a trade war. Assuming the 25% US tariff goes ahead, Canada and Mexico are highly likely to retaliate, which would also hurt the US as 17% and 16.3% respectively of its total exports went to those destinations in 2024. Canada’s foreign minister Joly has already said that there will be a response.
- In 2024, over 28% of US merchandise imports came from Canada and Mexico and thus a 25% tariff is likely to result in higher prices certainly in the short- to- medium terms.
US imports by source % total
- In the year to November, the US’ trade deficit with Canada narrowed around $4.5bn to its lowest since 2021 but it is $46bn wider than when Trump was last in office, making it a target. With Mexico it was $19bn wider in 2024 and over $60bn respectively.
- Canada is extremely exposed to the US with exports to its southern neighbour accounting for 76% of the 2024 total and in 2023 over 20% of GDP. But with supply chains highly intertwined between the two, US tariffs are likely to hurt both economies. Oil is a major export to the US, ranked 1 and 2, but Trump has previously said that it won’t be exempted from tariffs.
- Mexico’s exports to the US in 2024 accounted for 83% of the total but the economy is less exposed than Canada with them worth 6.8% of GDP in 2023.
Exports to the US 2023 %
Source: MNI - Market News/Refinitiv
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
TRUDEAU SAYS `WE HAVE A LOT OF WORK TO DO'
- TRUDEAU SAYS `WE HAVE A LOT OF WORK TO DO'
- TRUDEAU WANTS GOVT TO PREPARE FOR NEW US ADMINISTRATION
- TRUDEAU DOESN'T ADDRESS QUESTIONS ABOUT HIS LEADERSHIP
USDCAD TECHS: A Pullback Would Be Considered Corrective
- RES 4: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 3: 1.4537 2.0% 10-dma envelope
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4467 High Dec 19
- PRICE: 1.4356 @ 16:56 GMT Dec 20
- SUP 1: 1.4301 Low Dec 18
- SUP 2: 1.4174/4014 20- and 50-day EMA values
- SUP 3: 1.3928 Low Nov 25 and a key support
- SUP 4: 1.3822 Low Nov 6
USDCAD bulls remain in the driver’s seat. While price faded into the Thursday close, the recent breach of 1.4178, the Nov 26 high, confirmed a resumption of the uptrend and this maintains the price sequence of higher highs and higher lows. The latest rally opens 1.4508 next, a Fibonacci projection level. Initial firm support to watch lies at 1.4174, the 20-day EMA. A pullback would be considered corrective.
AUDUSD TECHS: Bearish Trend Structure
- RES 4: 0.6550 High Nov 25
- RES 3: 0.6501 50-day EMA
- RES 2: 0.6429 High Dec 12
- RES 1: 0.6337/6396 Low Dec 11 / 20-day EMA
- PRICE: 0.6263 @ 16:55 GMT Dec 20
- SUP 1: 0.6199 Low Dec 19
- SUP 3: 0.6158 1.236 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 3: 0.6100 Round number support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
The trend needle in AUDUSD continues to point south and this week’s fresh cycle lows and Wednesday’s sell-off, reinforce a bear theme. The move down maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. The break lower opens 0.6158 next, a Fibonacci projection. Initial firm resistance to watch is 0.6396, the 20-day EMA.
