Here’s what’s happening today.
Trump Promises Immediate New Tariffs on Mexico, Canada and China
President-elect Donald Trump promised Monday evening that on his first day in office he will slap a 25% tariff on all goods imported from Canada and Mexico — the top two U.S. trading partners — and will impose an additional 10% tariff on products from China. Trump said those tariffs would stay in place unless and until those countries control the flow of illegal drugs, particularly fentanyl, and of “all Illegal Aliens” into the country.
“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem,” Trump wrote in a social media post. “We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
Trump has promised a tough new trade policy that he says will reinvigorate American manufacturing, improve terms with U.S. trading partners and compel companies to bring jobs back to the country. He may be issuing these threats as a negotiating tactic, but he has also repeatedly claimed that China and other countries will bear the burden of his planned tariffs, even as most economist warn that those costs will ultimately fall on American consumers and drive inflation higher.
Trump’s tariff plan also invites retaliation from those key trading partners and threatens to ignite a new trade war that would undercut the United States-Mexico-Canada Agreement, or USMCA, signed during Trump’s first term. Tariffs would violate the terms of that deal.
Mexico is the United States’ top trading partner, accounting for nearly 16% of total trade as of September, Reuters reports. Canada is second, at just under 14%.
“Stiff new tariffs on imports from the US’s three largest trading partners would significantly increase costs and disrupt business across all economies involved,” Erica York, senior economist at the business-friendly Tax Foundation think-tank, told the Financial Times. “Even the threat of tariffs can have a chilling effect.”
The Tax Foundation estimates that Trump’s tariffs, if imposed permanently, would generate $1.2 trillion in revenue over a decade — but would reduce GDP by 0.4 percent and cost nearly 345,000 jobs. Those estimates do not include any effects of foreign retaliation or the additional impact of a global trade war.
Already, China and Mexico have fired back at Trump’s comments.
“China-US economic and trade cooperation is mutually beneficial in nature. No one will win a trade war or a #tariff war,” Liu Pengyu, a spokesperson for the Chinese Embassy in the U.S., said in a post on X.
And President Claudia Sheinbaum of Mexico indicated on Tuesday that she wouldn’t shy away from a clash and warned that the economic consequences for both countries could be severe. “The response to one tariff will be another, until we put at risk companies that we share – yes, that we share," Sheinbaum said at a press conference, reading aloud from a letter she planned to send to Trump. She added that tariffs would hurt U.S. automakers and lead to inflation and job losses in both countries.
She also said that migrant encounters at the U.S.-Mexico border are down sharply since December and called for cooperation in addressing the issue and the factors that drive families to try to enter the United States. “If a percentage of what the United States allocates to war is dedicated to peacebuilding and development, the mobility of people will be fundamentally addressed,” she said. And she called the drug problem a public health issue for the United States to address.
Her remarks suggest a tougher stance than Trump encountered in his first term. “We negotiate as equals, there is no subordination here, because we are a great nation,” Sheinbaum said, adding that she believes an agreement will be reached.
Why it matters: “Trump’s market-moving threats were a stark reminder that he plans to wield tariff authority, or at least threaten to use it, as leverage against allies and adversaries alike,” Bloomberg’s Nancy Cook and Brian Platt write. “It’s another sign of his break from the international order where low tariffs are the goal and rules exist to discourage overreach of punitive trade actions.”
Voters who elected Trump to address the cost of living are likely to wind up paying the price.
IRS Faces a Surprise $20 Billion Funding Hole
The Treasury Department is warning that $20 billion for Internal Revenue Service enforcement efforts is effectively frozen as the result of legislative language used in the stopgap law passed to fund federal agencies through December 20.
In 2022, Democrats provided the IRS with a funding boost of $80 billion over a decade on top of the agency’s annual budget — money that was to be used to ramp up enforcement, modernize technology and improve taxpayer service. Republicans waged a brutal campaign against the stepped-up enforcement, and they succeeded in getting the Biden administration to agree to redirect $20 billion toward other programs.
The current freeze affects an additional $20 billion in IRS enforcement funding. It’s the result of the latest stopgap legislation, passed in late September, to keep the government running until just before the end of the year. As The Wall Street Journal’s Richard Rubin explains, “that legislation kept the prior year’s language, effectively repeating the $20 billion enforcement cut. Congressional Republicans told the industry publication Tax Notes that this was part of an intentional strategy and that they tried not to call attention to it before it kicked in.”
The Biden administration is looking to address the problem and unfreeze the funding in the next spending bill. “The IRS is going to potentially have to make dramatic decisions about stopping hiring and starting to budget for a world which they don’t have $20 billion, which will stop a lot of their progress,” Deputy Treasury Secretary Wally Adeyemo told reporters. “If they don’t get that $20 billion that is at risk, they would run out of enforcement money at the current pace sometime in fiscal year 2025.”
That would mean 6,000 fewer audits of top-earning individuals and 2,000 fewer audits of large corporations, Adeyemo said. The decreased enforcement would result in an increase in the deficit of $140 billion, he said.
The bottom line: The issue could prove to be a point of contention in upcoming talks to fund the government beyond the December 20 shutdown deadline, though Republicans are also set to have more control over IRS funding — and seek severe cuts — as they take over both chambers of Congress and the White House next year.
Fiscal News Roundup
- Donald Trump Says He Will Hit China, Canada and Mexico With New Tariffs – Financial Times
- Mexico's President Warns Trump's Tariffs Will Worsen US Inflation, Kill Jobs – USA Today
- 'Counter to Facts and Reality': China, Mexico, Canada Respond to Trump Tariff Threats – USA Today
- Trump Expected to Name Kevin Hassett to Lead National Economic Council – Politico
- Trump Team Eyes Quick Rollback of Biden Student Debt Relief – Politico
- Ramaswamy Threatens DOGE Review of Biden’s Microchip Funding Spree – Politico
- IRS Enforcement Money Has Unexpected $20 Billion Hole – Wall Street Journal
- IRS Hiring Freeze Looms if Congress Doesn’t Fix $20B Budget Anomaly, Treasury Warns – Federal News Network
- Biden Proposes Medicare and Medicaid Cover Costly Weight-Loss Drugs for Millions of Obese Americans – Associated Press
- Trump Team Eyes Funding Showdown With Sanctuary Cities Over Immigration – Washington Post
- Biden Administration to Loan $6.6B to EV Maker Rivian to Build Georgia Factory That Automaker Paused – Associated Press
- Musk Targets Trump’s Favorite Fighter Jet – Politico
- US Membership in the World Health Organization Is on the Line With Trump’s Return – Politico
Views and Analysis
- Trump’s Threat to Impose Tariffs Could Raise Prices for Consumers, Colliding With Promise for Relief – Tom Krisher and Christopher Rugaber, Associated Press
- Trump’s Tariffs on Mexico and Canada Won’t Reduce Grocery Prices – Catherine Rampell, Washington Post
- Trump’s Tariff Plan Makes Little Sense – Peter Coy, New York Times
- Trump's Tariff Plan Could Raise Prices, Blow Up His Own Trade Deal With Mexico and Canada – Selina Wang and Karen Travers, ABC News
- GM and Other US Automakers Would Take Big Hit From Trump Tariffs – Cassandra Garrison, David Shepardson and Ben Klayman, Reuters
- Would Bernie Have Won? – Ezra Klein, New York Times
- Reversing Biden Executive Actions Could Save up to $1.4 Trillion – Committee for a Responsible Federal Budget
- I Ran Operation Warp Speed. I’m Concerned About Bird Flu. – David A. Kessler, New York Times
- Trump’s Evasion of January 6 Accountability Will Echo for Next Four Years and Generations to Come – Stephen Collinson, CNN