FTZs Prepare For Trade As A Hammer

A major disagreement between the US and Colombia on immigration threatened to spill over into a trade war. After refusing two U.S. military aircraft carrying Colombians deported from the United States, the Trump administration responded by threatening to slap punitive tariffs on Colombian exports to the US.

An intense but brief spat erupted and subsided by nightfall after President Gustavo Petro agreed to allow US military flights carrying deported migrants to land in the Andean country.

One week later President Trump signed Executive Orders to put a 25 percent tariff on products from Canada and Mexico, claiming that the countries were allowing “mass numbers of people and fentanyl” to come to the United States.

Like Colombia, Canada and Mexico responded to the threat of tariffs in ways that suggest the negotiating tactic is working. As the method produces more results, international traders will need to prepare for tariffs to be used more often to achieve objectives that may or may not be trade related.

Mexican President Claudia Sheinbaum posted on social media that Mexico will immediately reinforce its northern border with 10,000 members of the country's National Guard to address drug trafficking from Mexico into the U.S., particularly fentanyl.

She wrote on X after a call with President Trump. “We had a good conversation with President Trump with great respect for our relationship and sovereignty,” she said.

She explained that, as a result of their discussion, Mexico would send 10,000 National Guard troops to its northern border to “prevent drug trafficking from Mexico to the United States”.

Sheinbaum added that the US was, in return, working to prevent the trafficking of high-powered firearms to Mexico, which has long fed cartel activity in the country.

Following two calls with President Trump yesterday, Canadian Prime Minister Justin Trudeau also announced on X that “proposed tariffs will be paused for at least 30 days while we work together”.

The Prime Minister further wrote that Canada would be spending $1.3 billion on a plan to reinforce its border with new helicopters, technology and personnel, as well as additional resources to stop the flow of fentanyl.

The Canadian government would name a “fentanyl czar”, list Mexican cartels as terrorist groups, and launch a “Canada-US Joint Strike Force to combat organized crime, fentanyl and money laundering”.

In his Senate confirmation hearing, Treasury Secretary Scott Bessent listed three main reasons that the Trump administration might deploy tariffs. Some tariffs could be aimed at remedying unfair trade practices, while others could raise revenue for the federal budget.

He added that Mr. Trump, as a skilled negotiator, had “added a third use of tariffs.” Tariffs could be used for negotiations, including for Mexico on the fentanyl crisis, he said.

Foreign-trade zones are no strangers to unfair trade practices. Using tariffs to raise revenue would likely involve Congressional action, giving international supply chains time to adjust to legislative action as it is debated.

However using them as a negotiating tactic could leave the trade unprepared to when they are implemented quickly to force a position.