Former U.S. President Donald Trump is poised to implement a 25% tariff on imports from Canada and Mexico as early as Saturday, a move that could increase the cost of a wide range of products, including gasoline, vehicles, and food items like avocados.
The proposed tariffs have already drawn sharp criticism from Canadian and Mexican officials, who have vowed to retaliate. Ontario Premier Doug Ford announced plans to remove American alcohol from store shelves, highlighting the significant impact such tariffs could have on U.S. exports. Canada is the second-largest market for American distilled spirits after the European Union.
The tariffs also threaten the integrity of the United States-Mexico-Canada Agreement (USMCA), a trade deal negotiated by Trump during his first term. Once described by Trump as “the fairest, most balanced, and beneficial trade agreement we have ever signed into law,” the USMCA was designed to ensure stability in North American trade. However, critics argue that imposing such sweeping tariffs undermines the very principles of the agreement.
A Blow to Economic Certainty
Economists and trade analysts have expressed concerns about the economic fallout from the tariffs. Scott Lincicome, a trade analyst at the Cato Institute, warned that the levies could “destroy the agreement that Trump himself negotiated.”
The tariffs, according to Trump, aim to pressure Canada and Mexico to address issues such as the flow of undocumented immigrants and fentanyl into the United States. However, industry experts believe the move is also a strategic effort to force renegotiations on USMCA terms when it comes up for renewal next year.
Michael Robinet of S&P Global Mobility speculated that Trump might soften the blow by postponing the tariffs, phasing them in, or exempting specific industries to demonstrate the potential consequences if his demands are not met.
Trade Deficits and Economic Impact
Despite Trump’s initial goal of narrowing the U.S. trade deficit with its neighbors, the gap has widened significantly. The trade deficit with Mexico rose from $106 billion in 2019 to $161 billion in 2023, while the deficit with Canada grew from $31 billion to $72 billion over the same period.
The tariffs would impact billions of dollars in trade. According to PwC, annual tariffs on Mexican imports to the U.S. could jump from $1.3 billion to $132 billion, while those on Canadian imports could increase from $440 million to $107 billion.
The uncertainty surrounding the tariffs has caused anxiety in corporate boardrooms. Trade lawyer Chandri Navarro noted that businesses are scrambling to adjust supply chains and production plans in anticipation of potential disruptions. “What industry likes is certainty,” Navarro said.
Canada and Mexico Prepare to Retaliate
Both Canada and Mexico have indicated they are ready to respond if Trump moves forward with the tariffs. Canadian political leaders, including Chrystia Freeland, have called for targeted retaliation against U.S. industries, such as Florida’s orange growers and Wisconsin’s dairy farmers.
In Mexico, President Claudia Sheinbaum emphasized that while her administration values partnership and dialogue with the U.S., it will defend Mexico’s sovereignty and dignity if tariffs are imposed. “We are prepared and have been for months,” Sheinbaum said.
High Stakes for North American Trade
The U.S. conducts more trade with Canada and Mexico than with any other country. In 2023, total trade with its two neighbors surpassed $1.8 trillion, dwarfing the $643 billion in trade with China. Most of this trade has been tariff-free under the USMCA, but Trump’s proposed tariffs could fundamentally alter this dynamic.
As businesses, governments, and consumers brace for potential disruptions, the uncertainty surrounding Trump’s tariff strategy leaves North American trade relations hanging in the balance.