President-elect Donald Trump has pledged to impose heavy tariffs on goods entering the United States, but experts say they could affect domestic energy and natural resources.
To reduce the flow of drug trafficking and illegal immigrants, Trump said he would impose 25% tariffs on goods coming from Canada and Mexico. He has also promised to impose 10% tariffs on Chinese goods on top of current tariffs unless fentanyl smuggling is controlled.
Trump plans to use tariffs to make the U.S. more competitive and promote domestic markets.
“There’s going to be a renewed focus on domestic energy production and regulatory reform,” said Mona Dajani, partner at Baker Botts. “That’s what these tariffs are doing, is prioritizing domestic energy production, including critical minerals, which will make the U.S. competitive.”
However, high tariffs could affect specific energy industries and gasoline prices since the U.S. imports gas from both Mexico and Canada. According to the U.S. Energy Information Administration, in 2022, the U.S. imported about 52% of petroleum from Canada, and about 12% of U.S. petroleum imports came from Mexico.
The possible tariffs have sparked some reactions from Doug Ford, the premier of Ontario, Canada, who threatened to cut off energy to parts of the U.S. if Trump imposed such steep tariffs.
Sanjay Patnaik, the director of the Center on Regulation and Markets at Brookings, said a question remains: Which countries besides China will Trump seriously consider imposing tariffs on?
Patnaik added that the tariffs on Canada and Mexico might be a negotiating tactic to ensure those countries do more on immigration and drug trafficking. He said that in terms of costs, the renewable energy industry could benefit from cheap Chinese imports.
“The major impact will be through a lot of different parts of the supply chain that rely on materials and supplies that originate in China,” Patnaik said.
Mexico and Canada are the U.S.’s largest import sources of steel used to build solar panels and installations.
Joseph Webster, a senior fellow at the Atlantic Council, said steel will affect most industries, such as wind and solar. He added that constructing natural gas power plants, combined-cycle gas plants, and new pipelines requires steel.
“Every part of the energy landscape would be impacted by steel tariffs,” Webster said.
In addition, the automotive industry could also feel the effects as Mexico is a significant auto producer.
“If there are tariffs on Canada and Mexico, it’s also going to have a chilling effect on autos,” Dajani said. “A lot of the traditional, more affordable EVs are being assembled in Mexico.”
Trump is also expected to roll back the Biden administration’s tax credits for electric vehicle purchases from the Inflation Reduction Act.
Dajani added that these possible rollbacks will affect the entire U.S. auto industry, not just EVs.
She said, “I think vehicle volumes will go down, manufacturers will lose scale, and that impacts the ability to lower the price long term.”
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Trump could also be looking at imposing tariffs on other countries.
Last month, he said on TruthSocial “I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!”