How Trump’s tariffs could affect the US, Canada and Mexico.
Decades of trade integration in North America are being disrupted by tariffs President Trump has said he wants to impose on Canada and Mexico, the United States’ top trading partners.
And while tariffs are predicted to hurt all three countries, they will hurt Canada and Mexico, the smaller economies most dependent on the United States, more.
Officials in both countries breathed a brief sigh of relief on Monday when Mr Trump suspended tariffs as part of executive orders on his first day in office. But the relief was short-lived: Later in the evening, Mr Trump told reporters he still planned to pursue tariffs.
“We’re thinking about 25 percent on Mexico and Canada,” Mr. Trump said in the Oval Office. “I think we’ll do it on February 1.”
Trade experts are evaluating whether the tariffs will be implemented or whether the threat is merely a bargaining ploy aimed at winning concessions from Mexico and Canada. The two countries avoided high tariffs during the first Trump administration, and both the United States needs Mexico and Canada to take on arch-rival China.
Economists and policymakers say tariffs will result in lost income and jobs and force consumers to pay more for many products.
Mr. Trump signed an executive order on Monday directing federal agencies to conduct a thorough review of U.S. trade policies that could lead to additional measures against Mexico and Canada.
Mr. Trump is hoping the tariffs will be met by retaliatory tariffs from Canada and Mexico and will loosen integrated production lines and supply chains in North America.
More than $1.5 trillion worth of goods will be online — the total value of all goods traded between the United States and Canada and the United States and Mexico. (This is the total value of these trade ties in 2023, the most recent available according to US government data.)
Economists predict that the initial impact of the free trade agreement known as the USMCA (United States-Mexico-Canada) will be negative for all three countries.
The negative impact is difficult to translate into hard numbers: not only is it unclear what goods Mr. Trump will target and how Mexico and Canada will respond, but the effects can change over time, including rising inflation as goods become more expensive. Job losses and spending freezes as consumers worry about falling incomes.
And governments often intervene to mitigate some of the negative impacts. Canadian government officials have said they are considering bailing out businesses and supporting the hardest-hit workers.
But some industries will be disrupted more quickly: agriculture, autos and energy suppliers, all three pillars of the economy benefiting from cold tariffs.
united states
A few pockets of industry in the United States could face a 25 percent tariff on imports from Canada and Mexico — for example, where American tomatoes and other seasonal fruits and vegetables have trouble competing with their Mexican counterparts.
But most industries will be hit hard by the economic disruption of such high tariffs.
Even groups that prefer more protection against Mexican exports, such as U.S. automakers, could be hurt if tariffs suddenly bring auto supply chains to a standstill. Both the United Automobiles and the United Steelworkers International Union straddle the US-Canada border and include members in Canada, meaning they oppose any restrictions on Canadian exports.
Because the United States is North America’s largest economy and least dependent on trade, the relative impact on the US economy will be less than that of the economies of Mexico or Canada.
But tariffs will increase prices for consumers and increase inflation. American households and businesses can expect to pay higher prices for a variety of goods subject to tariffs, including avocados, beer, steel, cars and petroleum.
Those high prices will discourage purchases and possibly slow the economy. Peterson International Economics researchers in Washington Estimate A 25 percent tariff on exports from Mexico and Canada would reduce the U.S. gross domestic product by $200 billion for the second term of the Trump administration.
American industries exporting to Canada and Mexico are expected to be hurt if those countries turn around and impose tariffs on American goods. As the Canadian government plans to attack orange juice from Florida, whiskey from Tennessee and peanut butter from Kentucky, the Mexican government has been planning its own retaliation.
Canada
The US-Canada trade relationship is characterized by some Eye-catching facts It highlights the economic, industrial and trade relations of the countries.
Every day, $2.5 billion worth of goods are traded across the border, making it a $800 billion trade relationship annually.
For the auto industry, the US-Canada border can often seem irrelevant, with a vehicle crossing back and forth as many as eight times before it’s fully assembled.
Canada exports 80 percent of its oil to the United States and receives half of its oil from Canada. And Canadian energy supplies homes and businesses across the United States, particularly in New England, where Quebec exports hydroelectric power.
And Canada exports to the U.S. other critical commodities like potash, which is used in fertilizer, and uranium, which is needed to produce nuclear power.
If Mr. Trump pursues tariffs, the outcome will depend on how broad they are or whether some Canadian products, such as oil, could be exempted. But Canada’s failure could be catastrophic.
Economists predict that economic output will decrease from 2 to 2.6 percent every year. More than half a million Canadian jobs are at risk in Ontario’s auto industry, according to provincial Premier Doug Ford.
If tariffs were imposed on Canadian energy and Canada retaliated by restricting oil exports, the effects would be felt across the country, especially in Alberta, Canada’s oil-exporting hub.
Alberta’s provincial leader has rejected the federal government’s plan to use oil as leverage to pressure the Trump administration to back down on tariffs.
Mexico
Mexico stands out among major economies for its trade dependence with the United States, sending about 80 percent of its exports to its neighbor, many of which come from factories within 30 miles of the border.
Because those plants are focused on serving the U.S. market, that makes Mexico more vulnerable to tariffs than a large industrial economy that can easily export to different markets.
A 25 percent tariff would be devastating for Mexico, said Marcus Noland, executive director and research director of the Peterson Institute for International Economics.
“Thus begins the process of deindustrializing Mexico,” he said.
Mr. Noland estimates that such tariffs could reduce Mexico’s economic growth by 2 percentage points, leading to significant factory closings and job losses. Mexico’s automobile industry, which employs more than a million people and relies heavily on complex supply chains, could be particularly vulnerable.
Other sectors of Mexico’s economy could face greater pressure from higher tariffs. Automobiles, computers, cables, telephones, and medical equipment are among Mexico’s top exports.
Agriculture is another area of weakness for Mexico, supplying 63 percent of US vegetable production and 47 percent of fruit and nut production. The tariffs could hurt iconic products such as avocados, which are in high demand among American consumers after the United States began importing them from Mexico.
Kimberly Sperfechter, an emerging market economist at Capital Economics in London, cited the budget as saying that Mexico’s ability to cushion the damage from tariffs is also limited by fiscal constraints. lack of In the year In 2024, it reached its highest level in decades.
One sector of Mexico’s economy that could benefit from the tariffs is the tourism industry. If tariffs are imposed, the country’s currency, the peso, could weaken, Ms. Sperfechter said, making Mexico more attractive to American tourists, who represent the country’s largest group of international visitors.
“However, this is unlikely to offset gains in other sectors,” she added.
