President-elect Donald Trump said Monday he plans to impose 25% tariffs on goods imported from Mexico and Canada on his first day back in office, threatening price increases across key consumer products.
MILL VALLEY, CA - 2015: Gas could be pricier due to proposed steep tariffs. (Photo by Justin ... [+]
In a Truth Social post announcing the move, Trump said he would levy tariffs on the two countries—which surpassed China in recent years as the U.S.’ top trade partners—and raise tariffs on China by 10%, blaming the countries for an influx in migrants and drugs illegally entering the U.S. after promising throughout his campaign that he implement tariffs.
It’s unclear if Trump will follow through on this announcement or whether the proposed tariffs are a posturing tactic, as the tariffs would likely oppose articles in the United States-Mexico-Canada Agreement, a trade agreement Trump signed in 2020 to expand and update the trading relationships.
Trump has suggested tariffs could achieve his long-term goal of ending reliance on foreign manufacturing and building domestic businesses; he started pursuing tariffs on foreign goods in 2017, with current rates remaining around 11% on Chinese imports as the Biden administration has not ended them.
The proposed new tariffs are controversial because Trump’s tariffs on China ignited a trade war during his first term in office; economic data shows the trade war negatively impacted the U.S. economy and passed the elevated prices onto the consumer, while today, economists say tariffs would hurt consumers and the economy by raising inflation.
Doug Ford, the premier of Ontario, Canada, called Trump’s move “devastating” in an X post on Monday, and Prime Minister Justin Trudeau spoke with the president-elect Monday, saying in a later interview that “this is a relationship that we know takes a certain amount of working on and that’s what we’ll do.”
Mexico’s President Claudia Sheinbaum said Tuesday the announcement was “unacceptable” and that Mexico would consider retaliating against U.S. tariffs by imposing tariffs on American goods.
One of the biggest effects of tariffs would be on crude oil and gasoline consumption. Raising tariffs to just 10% could bump gas prices by as much as 5%, experts at BCA Research told Politico in October. A tariff of 25% could raise the national average beyond that. That’s because Canada is the largest exporter of crude oil to the U.S., with oil exports reaching record highs in July and averaging more than 4 million barrels a day. Mexico is the second-largest, exporting nearly $20 billion of oil to the U.S. in 2023. Tariffs also complicate the trade relationship because crude oil has to be refined, and refineries located in the U.S. often don’t work with a common grade of oil found in Canada. A significant portion of the oil produced in Canada is considered a poorer grade, “heavy” oil that’s more expensive to handle, according to the Canada Energy Regulator. Many U.S. refineries, like those in the Midwest, almost exclusively handle this grade of Canadian oil. Oil industry analyst Patrick De Haan posted to X on Nov. 25, showing the Midwestern areas in which gas prices would rise because of the refineries focused on Canadian oil, adding businesses “can't simply process different oil overnight. It would take investments [and] years. More US supply wouldn't help.”
Research from the Peterson Institute for International Economics in August showed hefty international tariffs (a theoretical 20% international tariff and a 60% tariff against China that Trump has previously proposed) could raise the average annual household expenses by more than $2,600. Left-leaning think tank Third Way found that a theoretical 10% tariff internationally and a 60% tariff against China meant Americans would pay “at least $185 more a year for groceries and $551 more at a big-box store.” David Ortega, a food economist and professor at Michigan State University, told Forbes it’s complicated and too premature and complicated to predict future food prices but said prices would likely grow under tariffs, with businesses passing the elevated costs onto the consumer. Grocery bills would be affected by tariffs because the U.S. imports more than 50% of its fresh fruits and vegetables. The U.S. is Mexico’s top buyer of agricultural products through Mexico’s exporting of strawberries, raspberries, peppers, tomatoes, beef, cane sugar, and avocados (which Mexico leads in exporting), beer, tequila and mezcal, according to the Department of Agriculture. The U.S. is also Canada’s top buyer of agricultural products, and Canada’s exports include seed oils, potatoes and cocoa. Canada also supplies the U.S. with tens of billions worth of materials like plastics, pharmaceuticals, chemicals, iron, steel, aluminum, wood, wood charcoal, pearls and precious stones, according to Trading Economics, and many of these materials help generate goods across industries.
“Moving production out of Mexico and Canada to the U.S. would cost billions and probably mean higher prices relative to a tariff-free North America,” David Whiston, a Morningstar analyst, said in a Tuesday note. Costs would be passed onto the consumer, meaning elevated prices in an industry already facing affordability problems. Cars comprise another massive portion of the trade between these countries. Mexico exported more than $150 billion in vehicles and parts in 2023 to the U.S., and Canada exported more than $50 billion in vehicles and parts to the U.S. in 2023, according to the data analytics company Trading Economics. Whiston said companies with manufacturing in these countries would have to “revamp” because nearly all manufacturing, even domestically, requires parts that have passed the border and faced tariffs. Companies like Ford, Volkswagen, Stellantis and General Motors would be most affected, Bernstein research analyst Daniel Roesk said Tuesday, the Associated Press reported.
Corie Barry, the CEO of Best Buy, described the tariffs in a Nov. 26 earnings call as “a very fluid situation” with costs historically shared by vendors, Best Buy and the customer. Barry also acknowledged its relationship with Mexico as one of biggest exporter of products that might be found at Best Buy. Mexico exported more than $50 billion worth of electronic goods in 2023. Canada exported more than $40 billion in machinery and electronic equipment to the U.S. in 2023, according to Trading Economics.
More than 70%. That’s the percentage of goods Canada and Mexico traded to the U.S. in 2023. Canada “exported 78% of its goods” to the U.S. in 2023, according to Congressional Research. Mexico, meanwhile, exported 80% of its goods to the U.S. in 2023.