President Donald Trump announced this week that new tariffs on Canada and Mexico will take effect Saturday. These neighboring countries are not only close in distance but also vital economically to the United States. The trade volume between the U.S. and these North American partners has surpassed that of China, reaching an impressive $1.8 trillion in 2023, compared to just $643 billion in trade with China for the same year.
Several imported goods are poised to be affected right away.
AUTO PRODUCTION IN JEOPARDY
For many years, automobile manufacturers have created supply chains that span the borders of the United States, Canada, and Mexico. According to S&P Global Mobility, over 20% of the cars and light trucks sold in the U.S. originate from either Canada or Mexico. In 2023, the United States imported vehicles worth $69 billion from Mexico, the highest amount from any nation, and an additional $37 billion from Canada. U.S. imports also included $78 billion in auto parts from Mexico and $20 billion from Canada. The engines used in vehicles like Ford’s F-series trucks and the Mustang sports car are typically sourced from Canada.
“You have components such as engines and car seats that cross the border numerous times before being assembled into a final product,” explained Lincicome from Cato. “American parts go to Mexico where they are incorporated into vehicles, which are then brought back to the U.S. This situation would be severely impacted by the 25% tariffs.”
According to S&P Global Mobility, importers are likely to transfer a significant portion, if not all, of these cost increases to consumers. TD Economics estimates that the average price of cars in the U.S. could rise by approximately $3,000. This comes at a time when an average new car is already priced around $50,000, and the average used car sits at $26,000, according to Kelley Blue Book.
RISING GASOLINE COSTS
Canada is America’s largest foreign source of crude oil. Between January and November of the previous year, Canada sent crude oil worth $90 billion to the U.S., while Mexico contributed only $11 billion. For many U.S. refineries, the Canadian supply is crucial. Canadian oil matches the specifications that American refineries are designed to process, particularly heavier crude oils. Contrarily, much of the oil produced through fracking in the U.S. is lighter, which numerous Midwest refineries struggle to utilize efficiently.
President Trump indicated Thursday that he has not made a final decision on whether to levy tariffs on oil imports from Canada and Mexico, but should he choose to do so, it could lead to significant increases in gasoline prices. Lincicome predicts that any tariffs on Canadian oil might manifest as higher prices at the pump, especially in the Midwest, estimating potential increases of 30 to 70 cents per gallon.
COSTLY AVOCADOS JUST IN TIME FOR THE SUPER BOWL
Consumers already grappling with steep food prices may face further hardships due to potential tariffs on agricultural imports from Canada and Mexico. In 2023, the U.S. imported over $45 billion in agricultural products from Mexico, accounting for 63% of its vegetable imports and 47% of fruits and nuts. Canada contributed an additional $40 billion in farm products. The imposition of a 25% tariff could lead to noticeable price hikes.
“Grocery retailers generally operate on tight margins,” Lincicome observed. “They simply cannot absorb the costs of tariffs, especially on essentials like avocados, which are mostly imported from Mexico—90% of which come from that country. We could see avocado prices spike just as the Super Bowl approaches.”
American farmers are also anxious about potential retaliatory tariffs from Canada and Mexico on U.S. goods such as soybeans and corn. This scenario echoes events during Trump’s first presidency, when retaliatory measures from China and other nations targeted American agricultural exports, adversely affecting rural economies. Trump later allocated billions of taxpayer dollars to assist struggling farmers.
Mark McHargue, a farmer from Central City, Nebraska, expressed mixed emotions about the previous support: “While President Trump did follow through on his promises, we’d prefer to thrive on market opportunities instead of government aid. It feels much better to be self-sustaining.”
