MICHEL MARTIN, HOST:
President Trump has renewed his threat to impose steep tariffs on imports from Mexico and Canada as early as tomorrow. He says it's a response to what he calls unfair trade practices, as well as drugs and unauthorized immigrants crossing their borders into the U.S. Many businesses are watching anxiously. NPR's chief economics correspondent, Scott Horsley, is with us now to tell us more about this. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Michel.
MICHEL MARTIN: So what do we think is in store this weekend?
HORSLEY: It is hard to know. If Trump makes good on his tariff threat, it could mean Americans pay substantially more for everything from guacamole to gasoline. But that is a big if. You know, during his first term in office, Trump imposed a lot of tariffs. He also threatened a lot of tariffs that never went into effect. So businesses are kind of in a wait-and-see mode.
MICHEL MARTIN: Are businesses making contingency plans while they wait?
HORSLEY: Some of them are. You know, we got trade data this week that showed a big uptick in imports during December. That suggests some businesses tried to stockpile goods before any tariffs take effect. But there are limits to that strategy - you know, warehouse space costs money. Produce, which we buy a lot of from Mexico, is perishable. General Motors said this week that it could shift some pickup truck production out of Mexico and Canada if tariffs are imposed. But CEO Mary Barra says they're not going to go down that road until they know what's actually going to happen.
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MARY BARRA: We are working across our supply chain, logistics network and assembly plan so that we are prepared to mitigate near-term impacts. What we won't do is spend a large amount of capital without clarity.
HORSLEY: For decades, the auto industry in North America has been very integrated, relying on manufacturing in all three countries. So unwinding that would be no small undertaking.
MICHEL MARTIN: You know, you were telling us that gasoline prices could also go up. Why?
HORSLEY: Yeah, especially in the Midwest. Oil refineries there are heavily dependent on crude oil from Canada. Those refineries are optimized for the kind of heavy sour crude that Canada produces, which is different than the light, sweet oil that we produce a lot of in this country. So it's not an easy switch to make. President Trump says he wants to see lower oil and gasoline prices in this country. He's counting on that to help cut other prices. But a trade war with Canada would likely have the opposite effect.
MICHEL MARTIN: OK, Scott. So how about the overall economy? How might a trade war affect that?
HORSLEY: It probably would not be enough to send the U.S. into recession, but it would slow economic growth. Matthew Martin, who's with Oxford Economics, projects that a 25% tariff on Mexico and Canada would shave a full percentage point off the U.S. GDP growth. That's one reason Martin doesn't think Trump will actually follow through.
MATTHEW MARTIN: We don't think equity markets would really like 25% tariffs on Canada and Mexico - would really hurt the economy. And hopefully, that kind of dissuades him from going full board.
HORSLEY: Canada and Mexico would probably pay a larger price in any trade war, but make no mistake - the U.S. would not get off unscathed.
MICHEL MARTIN: So, Scott, do we think that this tariff threat is really a negotiating tactic for the president?
HORSLEY: You know, it could be. We saw a dress rehearsal of that with Colombia last weekend, where Trump ultimately dropped his tariff threat once a deal was struck. But the stakes are a lot higher with Mexico and Canada. We do more than 20 times as much business with those countries as we do with Colombia.
MICHEL MARTIN: That is NPR's Scott Horsley. Scott, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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