How Trump’s tariffs could affect the United States, Canada and Mexico

Decades of trade integration across North America stand on the verge of major disruption due to tariffs that President Trump says he wants to impose on Canada and Mexico, the United States’ two major trading partners.

While the tariffs are expected to hurt all three countries, they will cause more damage to Canada and Mexico, smaller economies that rely heavily on the United States.

Officials in both countries breathed a sigh of relief on Monday, when Trump stopped short of making tariffs part of the storm of executive orders he issued on his first day in office. But the relief was short-lived: Later in the evening, Trump told reporters that he still planned to pursue tariffs.

“We’re thinking about 25 percent for Mexico and Canada,” Trump said in the Oval Office. “I think we’ll do it on February 1st.”

Trade experts are gauging whether the tariffs will materialize or whether the threat alone is a negotiating tactic aimed at extracting concessions from Mexico and Canada. Both countries avoided steep tariffs during Trump’s first administration, and both are betting that the United States needs Mexico and Canada to confront China, a much larger rival.

Economists and policymakers say tariffs would cost income and jobs and force consumers to pay more for many products.

Mr. Trump on Monday He signed an executive order Directing federal agencies to conduct a comprehensive review of U.S. trade policies, which could lead to further action against Mexico and Canada.

The tariffs Trump promises will likely be met with retaliatory tariffs from Canada and Mexico, and will dismantle closely integrated production lines and supply chains across North America.

At stake will be more than $1.5 trillion worth of goods, 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 relationships for 2023, the latest available, according to US government data.)

Economists expect the initial impact to be negative on the three countries, which are bound by the free trade agreement known as the USMCA (United States, Mexico and Canada).

The negative impact is difficult to translate into hard numbers: Not only is it unclear exactly what items Trump will target and how Mexico and Canada will respond, but the consequences could change over time, including higher inflation as commodity prices rise. Job losses and declining spending as consumers worry about falling income.

Governments often intervene to reduce some of these negative effects. Canadian government officials have already said they would consider bailing out businesses and supporting the hardest-hit workers.

But some industries will be disrupted quickly: agriculture, cars and energy suppliers, the pillars of the three economies, will be upended by sweeping tariffs.

US

Some U.S. industry sectors might welcome a 25% tariff on goods from Canada and Mexico – for example, American growers of tomatoes and other seasonal fruits and vegetables have difficulty competing with their Mexican counterparts.

But most industries will be hit hard by the economic disruption caused by such high tariffs.

Even groups that might favor more protection against Mexican exports, such as U.S. auto workers, could be harmed if tariffs suddenly bring auto supply chains to a standstill. Both the UAW and the United Steelworkers International union straddle the US-Canada border and have members in Canada, meaning they typically oppose any restrictions on Canadian exports.

Since the United States is the largest economy in North America and the least dependent on trade, the relative impact on the American economy will be less than its impact on the Mexican or Canadian economy.

But tariffs would raise prices for consumers and increase inflation. US households and businesses can expect to pay higher prices for a variety of goods subject to tariffs, including avocados, beer, steel, cars and oil.

These high prices would discourage purchases and would likely eventually slow the economy. Researchers at the Peterson Institute for International Economics in Washington appreciation Imposing a 25% tariff on all exports from Mexico and Canada would reduce US GDP by about $200 billion during a second Trump administration.

It is also assumed that American industries that export to Canada and Mexico will be harmed if these countries resort to imposing customs duties on American goods. Canadian government Targeting plans have been made Orange juice from Florida, whiskey from Tennessee, and peanut butter from Kentucky, while the Mexican government was making its plans Her own revenge plans.

Canada

Trade relations between the United States and Canada have some features Amazing facts Highlighting the close economic, industrial and trade relations between the two countries.

About $2.5 billion worth of goods are traded across the border every day, making their trade relationship worth $800 billion annually.

For the auto industry, the border between the United States and Canada can often seem irrelevant, with a single vehicle crossing back and forth up to eight times before it is fully assembled.

Canada exports 80 percent of its oil to the United States, which obtains half of its oil imports from Canada. Canadian Energy powers homes and businesses across the United States, especially in New England, where Quebec exports hydroelectric power.

Canada sends other vital commodities to the United States, such as potash, which is used in fertilisers, and uranium, which is essential for nuclear energy production.

If Trump continues to impose tariffs, the repercussions will depend on how widespread they are or whether some Canadian goods, such as oil, might be exempt. But the ramifications for Canada could be devastating.

Economists expect a loss of between 2% and 2.6% of economic output annually. More than a million Canadian jobs would be at risk, including about half a million in Ontario’s auto industry, according to the province’s Premier Doug Ford.

If tariffs are imposed on Canadian energy, and Canada responds by limiting oil exports, the impact will be felt across the country, especially in Alberta, Canada’s oil export hub.

Alberta’s provincial leader rejected the federal government’s plan that would use oil as leverage to pressure the Trump administration to back away from imposing tariffs.

Mexico

Mexico stands out among major economies for its reliance on trade with the United States, sending about 80% of its exports to its neighbor, many of which come from factories operating within 30 miles of the border.

Since these factories are largely focused on serving the US market, this makes Mexico more vulnerable to tariffs than a large industrial economy like Germany which can more easily redirect its exports to a range of different markets.

Marcus Noland, executive vice president and director of studies at the Peterson Institute for International Economics, said 25 percent tariffs would be devastating for Mexico.

“In effect, this will start the process of deindustrialization in Mexico,” he said.

Mr. Noland estimated that such tariffs could reduce Mexico’s economic output growth by about two percentage points, which could lead to widespread factory closures and job losses. The auto industry, which employs more than a million people in Mexico and relies heavily on complex supply chains that move parts across borders, may be particularly vulnerable.

Other sectors of the Mexican economy may come under severe pressure in the face of steep tariffs. Automobiles, computers, cables, telephones, and medical instruments are among Mexico’s largest exports.

Agriculture is another weak point for Mexico, which provides 63 percent of US vegetable imports and 47 percent of its fruit and nut imports. The tariffs could affect iconic products like avocados, which have seen increased demand among American consumers since the United States began importing them from Mexico.

Kimberly Spervichter, emerging markets economist at Capital Economics in London, said, citing the Budget. Lack In 2024, which reached its highest level in decades.

One sector of the Mexican economy that could benefit from tariffs is the tourism industry. If the tariffs are imposed, the country’s currency, the peso, could weaken, making Mexico more attractive to American tourists, who represent the largest international group of visitors to the country, Spervichter said.

“But this is unlikely to offset the damage to other sectors,” she added.