President Donald Trump has implemented a directive imposing tariffs on imports from neighboring countries Canada and Mexico, as well as from China, set to take effect Tuesday. In response, both Canada and Mexico swiftly announced their own retaliatory tariffs, while China commented on enacting “necessary countermeasures” in retaliation.
Trade between the United States and its North American partners has surpassed trade with China, totaling an impressive $1.8 trillion in 2023, compared to only $643 billion in U.S.-China trade during the same period. Trump’s declaration of an economic emergency on Saturday allowed for an imposition of 10% tariffs on imports from China and 25% on those from Mexico and Canada. However, energy imports from Canada, such as oil, natural gas, and electricity, will see a lower duty of 10%.
Several imported products are expected to experience a price surge as a result of these new tariffs:
One significant area affected is the automotive industry. Over the years, auto manufacturers have created supply chains that rely heavily on the borders between the U.S., Canada, and Mexico. According to S&P Global Mobility, in 2023 alone, over 20% of the cars and light trucks sold in the United States were produced in either Canada or Mexico. The U.S. imported $69 billion worth of vehicles from Mexico and $37 billion from Canada, alongside $78 billion in auto parts from Mexico and $20 billion from Canada. Notably, components for popular vehicles like the Ford F-150 and the Mustang originate from Canada.
Trade analyst Scott Lincicome stated, “You have engines and car seats and other things that cross the border multiple times before going into a finished vehicle.” He emphasized that the 25% tariff acts as a significant disruption to the established supply chains. Additionally, China remains a crucial supplier for auto parts in the U.S. market. S&P Global Mobility reported that importers are likely to pass these increased costs onto consumers, while TD Economics estimates that average new car prices could escalate by approximately $3,000, particularly concerning as the average price for a new car is already around $50,000.
The tariffs also target the energy sector. Canada is America’s primary foreign source for crude oil, with $90 billion flowing into the U.S. from Canadian crude from January to November last year, overshadowing Mexico’s $11 billion. American refineries are predominantly configured to process heavier crude from Canada, making supplies from Canada vital for Midwest refineries. Lincicome surmised that the effects of the tariffs on Canadian oil would likely result in a rise in gasoline prices across the U.S., particularly in the Midwest, predicting an increase of 30 to 70 cents per gallon.
The electronics sector faces a similar challenge due to tariffs on imports from China, with various consumer goods at risk. According to Commerce Department data, electronics like cell phones and computers are among the top imports from China, alongside an extensive array of toys, games, and sporting goods, totaling over $32 billion. The clothing sector is also affected, with the U.S. importing over $7.9 billion in footwear from China last year.
Additionally, the beverage industry may feel the impact from tariffs imposed on imports of tequila and Canadian whisky. The U.S. imported $4.6 billion of tequila and $108 million of mezcal from Mexico in 2023, not to mention $537 million of Canadian spirits. Any increase in tariffs could adversely impact both consumers and the U.S. hospitality sector, as stressed by Chris Swonger, the Distilled Spirits Council’s CEO, who pointed out that such tariffs could lead to job losses as businesses navigate their post-pandemic recovery.
The grocery aisle is also poised for price hikes due to escalating tariffs affecting imports from Mexico and Canada. In 2023, the U.S. accounted for over $45 billion in agricultural imports from Mexico, including 63% of all imported vegetables and 47% of fruits and nuts. Canada supplied $40 billion in agricultural products, indicating that a 25% tariff could substantially raise prices. Scott Lincicome noted the tight margins of grocery stores, which struggle to absorb increased costs, especially concerning popular products like avocados from Mexico that are essential for Super Bowl festivities.
Moreover, U.S. farmers are apprehensive about potential retaliatory tariffs on American exports, a scenario reminiscent of previous retaliatory measures during Trump’s prior administration, which saw U.S. agricultural exports suffer. Farmers ultimately prefer to engage in an open market, seeking profitability through sales rather than government compensation for losses.
Overall, the new tariffs and subsequent retaliatory measures promise significant consequences for a range of industries, from automotive to agriculture, with consumers likely to face higher prices and increased economic pressure in the coming months.
