WASHINGTON — The proposed 25% tariffs on imports from Canada and Mexico, set to take effect soon, may significantly increase costs across a variety of sectors, from gasoline and pickup trucks to Super Bowl party essentials like guacamole.
These tariffs are likely to lead to retaliatory measures. Doug Ford, Ontario’s premier, has already pledged to respond by removing American alcohol from shelves within Canada, a notable threat given Canada’s position as the second-largest market for U.S. distilled spirits—trailing only behind the European Union’s 27 member states.
The impending tariffs jeopardize the U.S.-Mexico-Canada Agreement (USMCA), which President Trump previously touted as a landmark achievement of his administration, promoting it as the most balanced and beneficial trade agreement to date. Originally intended to stabilize North American trade and inspire business investments, the current tariff situation raises questions about the future of that agreement.
Trade analyst Scott Lincicome from the Cato Institute expressed concerns that such high tariffs could undermine the very trade framework that Trump boasts about, stating that a move of this nature would effectively dismantle the agreement.
The administration claims that these tariffs aim to compel Canada and Mexico to tackle the influx of undocumented immigrants and fentanyl into the U.S. Many experts, including Michael Robinet from S&P Global Mobility, argue that these tariffs could also be a strategy to pressure both countries into agreeing to favorable adjustments to the USMCA, especially with its renewal on the horizon next year.
Robinet suggested that a sweeping implementation of the 25% tariffs might not happen immediately. He speculated that Trump could either delay, phase in the tariffs, or exempt certain industries at the beginning as a cautious tactic to show Canada and Mexico the possible fallout of noncompliance.
Previously, Trump pressured both neighbors into the USMCA as part of efforts to address the substantial trade deficit between the U.S. and these countries, which has, paradoxically, grown during his tenure. The deficit with Mexico surged from $106 billion in 2019 to $161 billion in 2023, partly because Mexico has replaced China as a primary import source for various products amid a trade conflict with the U.S.
Simultaneously, the trade deficit with Canada has also widened, escalating from $31 billion in 2019 to $72 billion in 2023, largely due to increased imports of Canadian energy. Lori Wallach, who leads the Rethink Trade initiative, pointed out that the USMCA has not achieved its intended goals and, in fact, has seen job relocations to Mexico following its implementation.
As the USMCA comes up for renegotiation next year, the U.S. may push for regulations that incentivize domestic manufacturing and crack down on Chinese goods transiting through Mexico. The current trade volume between the U.S. and its North American neighbors is impressive, projected at over $1.8 trillion in 2023, while trade with China sits comparatively lower at $643 billion. The USMCA, along with its predecessor deal from 2020, generally allows products to move freely across borders without tariffs.
The looming prospect of 25% tariffs is causing distress among businesses, with estimates suggesting that such changes could push import costs from Mexico from $1.3 billion to $132 billion and from Canada from $440 million to $107 billion annually. This uncertainty is creating a significant amount of anxiety within industries that rely on consistent trade relations.
Trump has often framed tariffs as a solution for various economic challenges, asserting they generate revenue for tax cuts and can prompt companies to relocate production back to the U.S. Administration officials counter that tariffs should not be viewed in isolation but as part of a broader economic strategy that includes tax reductions and regulatory reforms.
As companies brace for the possible changes, many are taking preemptive measures. Some are stocking up on imports to avoid new tariffs, while others are assessing how to manage any costs that might be transferred to consumers. Dave Evans, co-founder of Fictiv in San Francisco, noted that previous experiences have shown that the prices of goods often rise as a result of tariffs.
Responses are not limited to the U.S., as Canada and Mexico are preparing for potential retaliatory actions. Chrystia Freeland, formerly of Canada’s finance ministry and a key figure in USMCA negotiations, has indicated that appropriate measures will be taken if tariffs are imposed, targeting specific sectors such as agriculture in Florida and Wisconsin.
Mexico’s President Claudia Sheinbaum confirmed that her administration has maintained ongoing dialogue with Trump’s team, particularly on issues of immigration and drug trafficking. She emphasized Mexico’s readiness to respond to any tariff actions while seeking to uphold mutual interests instead of being positioned as competitors.
Sheinbaum concluded, stating, “It is crucial for the Mexican populace to understand that we will always defend the dignity and respect for our sovereignty.”
