Donald Trump has announced plans to slap 25 per cent tariffs on Mexico and Canada from February 1, citing concerns over immigration and fentanyl flows into the United States, while also taking steps to rename the Gulf of Mexico.

Speaking from the Oval Office while signing executive orders on January 20, the newly-inaugurated US president called Canada "a bad abuser" and signed an order to rename the Gulf of Mexico as the "Gulf of America", claiming the body of water "has long been an integral asset to our once burgeoning Nation and has remained an indelible part of America."

Mexican President Claudia Sheinbaum responded defiantly, stating her country "does not have to bow its head" to the United States. "We are a great country, a cultural power, and Mexicans are a hard-working, honest people," she said during her morning press conference at the National Palace in Mexico City. Regarding the gulf renaming, earlier this month she retorted: "Obviously the Gulf of Mexico is recognised by the United Nations... but why don't we call this 'Mexican America'?"

However, in an apparent bid to prevent the threatened 25 per cent US tariffs and appease the incoming administration, Mexico recently unveiled new measures targeting Chinese imports. The policy shift includes tariffs of 15-30 per cent on Chinese textiles, clothing, shoes, and toys, addressing Trump's accusations that Mexico serves as a backdoor for Chinese goods entering the US market.

The tariff announcement triggered an immediate market reaction, with Mexico's peso falling more than 1 per cent against the dollar to MXN 20.77 by Tuesday morning. The Canadian dollar similarly weakened, losing just under 1 per cent to trade at CAD 1.44.

In a broader trade memo viewed by Reuters, Trump ordered federal agencies to assess China's performance under the Phase 1 trade deal signed in January 2020. The agreement required China to increase purchases of US exports by $200bn above 2017 levels across four sectors. However, from January 2020 through October 2021, China's total imports reached only $208.3bn compared with the target of $334.8bn, representing 62 per cent of commitments.

The memo also signals plans for a possible renegotiation of the United States-Mexico-Canada Agreement (USMCA) in 2026, directing agencies to ensure that trade agreements "put American workers, farmers, and businesses first."

Banamex, Mexico’s second-largest bank, warned that Trump's initial announcements create economic uncertainty for the Central American nation. The lender expressed particular concern about his emphasis on expanding the US automotive industry without mentioning North American integration.

Market analysts expressed surprise at the targeting of Mexico and Canada as a first move. "When he started his election campaign, China was more of the obvious target," Michael Pfister, a foreign exchange analyst with Commerzbank, told Reuters. "With other countries omitted from tariff threats for now, the two countries that will be hit will be hurt the most."

Before taking office, Trump had indicated he might impose 10 per cent tariffs on global imports and 60 per cent on Chinese goods, alongside the 25 per cent tariffs now planned for Canadian and Mexican imports.

Canada exports more oil to the US than to any other country. Petroleum product exports from the US to Mexico averaged 1.2mn barrels per day in 2023, according to the US Energy Information Administration.

Nor is the renewable energy market immune. Trump’s threatened tariffs on Mexican and Canadian imports, and also an additional 10% on imports from China, would raise domestic wind project prices by 10-12%, say analysts, though that may be moot for the next four years; Trump issued an executive order on January 20 stating that permitting and leasing for new wind development in the US will be halgted, even on private land. It is not clear how much legal pushback there will be for this sweeping anti-wind agenda.