President Donald Trump threatened reciprocal tariffs against Canada Tuesday after the country said it would impose a retaliatory tariff on U.S. imports in response to 25% tariffs Trump imposed on goods from Mexico and Canada that started just after midnight Tuesday—potentially leading to price hikes on a range of imported goods, from food and alcohol to cars.
U.S. President Donald Trump speaks to members of the media before boarding Marine One on the South ... [+]
Trump threatened reciprocal tariffs after Canadian Prime Minister Justin Trudeau said he would immediately impose a 25% tariff on $20.7 billion USD worth of U.S. goods and a 25% tariff on an additional $86.3 billion USD on American products within 21 days, warning that the U.S.-imposed tariffs will lead to Americans paying “more for groceries, gas and cars,” though Trudeau did not say which products would be subject to the additional tax.
It’s unclear how much of the added cost of the Canadian and Mexican tariffs businesses could transfer to consumers, but most economists believe tariffs lead to higher prices.
The 25% tariffs on Canadian and Mexican goods, and a separate 10% tariff on all other imports, may cause prices on around a quarter of all consumer spending to rise 0.81% if businesses pass along half the costs, or 1.63% if the costs are fully transferred, according to a Federal Reserve Bank of Atlanta study.
The 25% Canada and Mexico tariffs could amount to an estimated total tax increase of between $120 billion and $225 billion, according to Jacob Jensen, a trade policy analyst at the center-right think tank the American Action Forum, told the Associated Press, while the Tax Policy Center estimates after-tax income could fall by $930 on average next year from the tariffs on Mexico and Canada, and the Peterson Institute for Economics predicts the tariffs on Canada, Mexico and China could cost the typical U.S. household $1,200 a year.
Groceries: A significant portion of food products, from meat and grains to fresh vegetables, are imported from Canada and Mexico—Canada is the largest exporter of meat to the U.S., while 77% of fresh vegetables were imported from Mexico and 11% were imported from Canada in 2020, according to the USDA.
Alcohol: The U.S. imported about $26 billion in alcohol from Mexico in 2022, while 18% of beer consumed from the U.S. stems from Mexico, according to the USDA.
Gas prices: Canada is the source of about 20% of oil used by Americans, while Canada and Mexico together account for 70% of U.S. crude imports—a 25% tariff could hike gas prices by 30 to 40 cents per gallon, GasBuddy head of petroleum analysis Patrick De Haan predicted to CBS last year, though Trump said earlier this year Canadian energy and oil exports would be subject to a lower 10% tariff.
Lumber: Canada is the largest supplier of lumber to the U.S., and the tariffs could lead the price per thousand board feet to jump to $600, up from just under $590, according to the Forest Resources Association; Trump last week also ordered the Commerce Department to investigate whether lumber imports threaten national security as White House officials argue the U.S. should be self-sufficient in the lumber industry and that existing policies have driven up construction and housing costs.
Cars: The average price of a new car could increase by an estimated $3,000, as 22% of all vehicles sold in the U.S. are imported from Mexico and Canada, according to S&P Global, while a study by Anderson Economic Group cited by multiple outlets estimates a $9,000 price increase for a large SUV with a significant number of parts produced in Mexico and $8,000 for a pickup truck.
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Commerce Secretary Howard Lutnick acknowledged Tuesday “there may well be short-term price movements,” but insisted that “in the long-term it’s going to be completely different.” When asked whether there will be an initial price increase for American consumers, Treasury Secretary Scott Bessent told Fox New,s “there’s going to be a transition period,” particularly for Canada and Mexico. Trump, meanwhile, told reporters last week fears of higher prices are “a myth that’s put out there by foreign countries that really don’t like paying tariffs.”
Officials in China and Canada announced retaliatory action against the tariffs shortly after they took effect Tuesday. China said it would increase import duties by 10-15% on several key American agricultural food products, plus expand export controls on 15 U.S. firms. Canadian Prime Minister Justin Trudeau announced a 25% retaliatory tariff on $107 billion worth of American goods. Mexican President Claudia Sheinbaum also announced Tuesday her country would impose retaliatory tariffs on a range of products she said she would identify Sunday, without providing details.
$900 billion. That’s the total value of Canadian and Mexican imports to the U.S. each year, according to the Brookings Institution.
Trump officially announced on Feb. 1 he would impose a 25% tariff on all imports from Canada and Mexico, with an exception for Canadian energy and oil experts, which would be taxed at 10%. While Trump hasn’t explicitly detailed what the countries can do to alleviate the tariffs, he has cited the flow of fentanyl from both countries, in addition to China, in threatening to impose the levies. Days after his initial announcement, Trump said he would delay the tariffs for a month amid negotiations with Canadian and Mexican leaders and assurances from both countries that they would do more to meet Trump’s demands on fentanyl and the border. The tariffs took effect at 12:01 a.m. Tuesday. Trump confirmed Monday they would remain at 25%, as he initially proposed, despite Commerce Secretary Howard Lutnick suggesting a day earlier Trump could modify the tax level as both countries have made progress firming up border security. Trump’s confirmation prompted almost an immediate decline in the stock market, with the S&P falling more than 2%, putting it on pace for its worst day this year.
How Will Tariffs Impact You? Here’s What To Know About Trump’s Plans (Forbes)