DETROIT — Should Donald Trump follow through with his proposal of implementing a 25% tariff on all imports from Mexico and Canada, the resulting price hikes would likely contradict his campaign commitment to alleviate inflation for American households.
Analysts warn that businesses would be driven to pass on these heightened costs, leading to significant increases in the prices of essential items like food, clothing, cars, and alcohol.
The president-elect introduced the idea of tariffs, along with an additional 10% duty on goods from China, as a tactic to pressure these countries into curbing the influx of illegal immigration and drug trafficking. His recent posts on Truth Social, where he announced potential tariffs on his first day in office, may be more of a strategy to negotiate concessions from these nations than a concrete policy initiative.
High food prices were a decisive factor for voters favoring Trump over Vice President Kamala Harris, but imposing tariffs could exacerbate this issue. A trade organization, the Produce Distributors Association, indicated that tariffs would elevate the costs of fresh produce and harm U.S. farmers due to potential retaliatory measures from other countries.
“Tariffs disrupt the market and lead to higher prices throughout the supply chain, resulting in consumers paying more at checkout,” stated Alan Siger, the president of the association.
Both Mexico and Canada rank among the largest suppliers of fresh fruit and vegetables to the U.S. According to 2022 data, Mexico accounted for approximately 51% of the fresh fruit and 69% of the fresh vegetables imported by value, while Canada contributed 2% of fresh fruit and 20% of fresh vegetables.
Prior to the election, around 70% of voters expressed significant concern over food costs, according to a survey involving over 120,000 voters.
During a visit to a grocery store in Pennsylvania, Trump promised shoppers, “We’ll get them down.”
The U.S. dominates as the world’s largest goods importer, with Mexico, Canada, and China being its top suppliers according to the latest Census statistics.
Prospective car buyers would likely face substantial price increases as well, particularly when average new vehicle costs hover around $48,000. Last year, around 15% of the 15.6 million new vehicles sold in the U.S. originated from Mexico, while another 8% came from Canada, statistics from Global Data reveal.
C.J. Finn, U.S. automotive sector leader for PwC, noted that the majority of the tariff costs would likely be absorbed by consumers unless automakers can quickly implement productivity enhancements. This situation would further alienate potential buyers from the market.
Top auto manufacturers such as Volkswagen, Stellantis, General Motors, and Ford would be most affected. Bernstein analyst Daniel Roeska outlined that Stellantis and VW import roughly 40% of their vehicles from Canada and Mexico, while GM and Ford source about 30% and 25% respectively from these nations. Both GM and Stellantis import over half of their high-margin pickup trucks from these two countries.
Should Trump enforce the tariffs in January, the auto industry would face limited time to adjust, potentially jeopardizing automakers’ profits. Roeska articulated that a 25% tariff on imports from Mexico and Canada would inflict considerable harm on the U.S. automotive industry.
Roeska further expressed skepticism, suggesting that such tariffs would significantly impair U.S. industrial production, making their practical implementation unlikely.
The announcement of potential tariffs led to negative impacts on stock prices of certain vulnerable companies, including auto manufacturers and Constellation Brands, which handles several Mexican beer brands in the U.S. However, the broader market remained stable near all-time highs, as investors perceived Trump’s proposal more as an initial negotiation stance rather than a definitive policy direction.
It’s uncertain how long these tariffs would endure if enacted, but they could compel automotive executives to relocate production to the United States, potentially generating job growth in the long term. Nevertheless, Morningstar analyst David Whiston remarked that in the short term, automakers would likely not shift their operations due to the extensive time and investment needed to alter manufacturing locations.
Moving production to the U.S. would require substantial investment in new equipment and an overhaul of supply chains, a process that could take years. “I think everyone is going to be in a wait-and-see mode,” concluded Whiston.
A significant volume of automotive parts crosses the borders with Canada and Mexico, which may lead to increased costs for auto repairs already hampered by high expenses, according to Finn.
The Distilled Spirits Council of the U.S. commented that any tariffs imposed on tequila or Canadian whisky would not result in increased American jobs, as these are unique products exclusive to their countries of origin. In 2023, the U.S. imported $4.6 billion worth of tequila and $108 million worth of mezcal from Mexico, alongside $537 million worth of spirits from Canada.
“Ultimately, tariffs on spirits from our neighboring countries will hurt U.S. consumers and threaten job stability across the hospitality sector, particularly as these businesses continue their arduous recovery from the pandemic,” the council stated.
Best Buy also noted during its third-quarter earnings call that the company operates with thin profit margins. While the company and its vendors may absorb some costs, consumers would ultimately see increased prices. “These are essential goods, and elevated prices are counterproductive,” stated CEO Corie Barry.
Walmart warned this week that potential tariffs might necessitate price hikes, echoing concerns from the Footwear Distributors and Retailers of America association.
Canadian Prime Minister Justin Trudeau, who spoke with Trump after the tariff proposal surfaced, reported a constructive discussion regarding collaboration to tackle shared challenges. “We can relay the facts and move forward positively. We recognize that our relationship requires ongoing effort, and we’re committed to that,” Trudeau remarked.
Trump’s transition team did not provide comments on the conversation.
In addition, Trump directed attention toward China, indicating he has had multiple discussions concerning the trafficking of drugs, especially Fentanyl, into the U.S., claiming no progress has been made.
The Chinese Embassy in Washington warned that a trade war could result in negative outcomes for all parties involved.
Trump’s tariff threats arise amid a decrease in illegal border crossings from Mexico, with the most recent figures indicating arrests near four-year lows. However, there has been an uptick in illegal crossings from Canada over the past two years.
A significant volume of the Fentanyl entering the U.S. is smuggled from Mexico, with drug seizure rates escalating under President Joe Biden.
The introduction of such tariffs would further cast doubt on the sustainability of the 2020 trade agreement crafted by Trump, known as USMCA, which succeeded NAFTA and is scheduled for review in 2026.
Trump’s transition team did not provide immediate responses regarding the specific authority he plans to utilize or what conditions would negate the need for tariffs, nor how they might influence pricing in the U.S.
Mexico’s Foreign Relations and Economy Departments also did not release any immediate statements concerning Trump’s comments.