by Bryan Perry
February 4, 2025
On the campaign trail, candidate Donald Trump said that he would levy tariffs on Mexico and China for being the source of the flow of deadly Fentanyl and illegal immigrants into the United States. Up until this past week, investors largely viewed these tariff threats as hot air within the negotiating process for fairer trade terms. Not knowing what was behind the scenes, it seems clear that any such measures or good intentions to slow the smuggling of Fentanyl across the border by China and Mexico in the first 10 days of the Trump administration did not materialize, but now the Trump team is focusing on Fentanyl.
In his first day of office, Trump issued numerous executive orders, one of which designated drug cartels in Mexico as “foreign terrorist organizations” engaged “in a campaign of violence and terror throughout the western hemisphere that has not only destabilized countries with significant importance for our national interests but also flooded the U.S. with deadly drugs, violent criminals, and vicious gangs.”
The U.S. Customs and Protection Agency said that it seized 27,023 pounds of Fentanyl in fiscal 2023, nearly double the 14,700 pounds the agency says it seized in 2022. The CDC said that Fentanyl overdoses caused an estimated 81,083 deaths in the U.S in 2023, down slightly from 84,181 in 2022.
“The tariffs on imports from Canada, Mexico, and China send a powerful message that the United States will no longer stand by as other nations fail to halt the flow of illegal drugs and immigrants into our country,” House Ways and Means Chairman Jason Smith (Rep-Mo), said a statement, as U.S. deaths from Fentanyl exploded from a low flat line under 3,000 (2001-2012), to over 80,000 deaths in recent years:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
A significant portion of the Fentanyl smuggled into the U.S. through Mexico originates from China. Chinese manufacturers produce the precursor chemicals needed to make Fentanyl, which are then shipped to Mexico. Mexican cartels use these chemicals to produce Fentanyl and smuggle it into the U.S. This complex supply chain has made it challenging for authorities to curb the flow of the deadly opioid.
One could argue this is China’s retribution for the Opium Wars of the 19th century, which significantly weakened the Qing dynasty, resulting in the ceding of Hong Kong to Britain, and increased Western influence in China. The addition to opium in China caused serious social and economic disruption.
Fentanyl is a synthetic opioid that is up to 50 times stronger than heroin and 100 times stronger than morphine. Putting a dollar amount on the Fentanyl drug trade is hard to calculate due to the illegal nature of the trade, but according to the RAND Corporation, the illicit drug trade in the United States is worth $150 billion. Worldwide, it reached as much as $652 billion, according to Global Financial Integrity, so, if this were a national GDP, it would be 22nd in the world, ahead of Sweden, Poland, and Belgium.
While suppliers in China and criminal gangs in Mexico have been long accused of trafficking Fentanyl into the U.S., Trump’s tariff order against Canada included a long preamble saying that drug trafficking from Canada is growing. “The challenges at our southern border are foremost in the public consciousness, but our northern border is not exempt from these issues,” the order reads. “Criminal networks are implicated in human trafficking and smuggling operations, enabling unvetted illegal migration across our northern border. There is also a growing presence of Mexican cartels operating Fentanyl labs in Canada.”
The new tariff orders against Canada, Mexico and China all contain clauses suspending duty-free exemption for low-value shipments below $800 that is widely seen as a loophole that has allowed shipments of Fentanyl and its precursor chemicals into the United States. Such small shipments often are not screened at ports of entry, allowing shipments of drugs and their ingredients to enter undetected.
A Reuters investigation last year revealed how Chinese chemical traders are using this de minimis exception to sneak shipments of Fentanyl precursors into America, from chemical labs in Mexico.
With the war on Fentanyl now becoming a new trade war, this could fuel inflation: “Most immediately, Americans will see food prices rise. Mexico is the source of around half U.S. fruit and vegetables. Gas prices, especially in the Midwest, may also rise,” says Marc Chandler, chief strategist at Bannockburn Global. “This is more of a slap than a gut-punch for China,” says Louis-Vincent Gave, co-founder of Gavekal Research, via email. “For Canada and Mexico, this is far more problematic. They have spent the past few years totally tying their economies to the U.S.” The newly announced tariffs could push Mexico and Canada into recession, and Canada’s Justin Trudeau and Mexico’s president Claudia Sheinbaum just announced their own retaliatory tariffs on U.S.-made goods that makes for some fresh market uncertainty.
The massive cross-border trade between the three major North American nations now exceeds U.S. trade with China by a large margin, totaling $1.8 trillion in 2023. That is far greater than the $643 billion in commerce that the U.S. did with China in that same year. Early estimates on the impact of new tariffs on American consumers, aside from fresh produce, include expected increases for automobiles and auto parts, along with Canadian whiskey and tequila from Mexico, and many consumer electronics.
The big question at this point is how Mexico and Canada will respond to waging war on Fentanyl production and smuggling into the U.S. If there are immediate concerted efforts on the part of both governments, with the assistance of U.S. military assets, the tariffs could be lifted soon and trade as usual restored. The cartels are powerful, financially liquid, weaponized to the teeth and ruthlessly evil.
Destroying or seriously weakening their operations will not be easy, but it is a war America must win.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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