President Donald Trump announced earlier this week that tariffs on the neighboring countries of Canada and Mexico will be implemented this Saturday. These nations share a close geographical and economic relationship with the United States. In 2023, trade between North American countries reached a substantial $1.8 trillion, surpassing the total trade volume with China, which was $643 billion for the same year.
A range of imported goods might be affected as a result of these tariffs.
**Impact on Auto Production**
For many decades, automotive manufacturers have developed supply chains that span across the borders of the U.S., Mexico, and Canada. According to data from S&P Global Mobility, over 20% of cars and light trucks sold in the United States are constructed in either Canada or Mexico. In 2023, the U.S. imported $69 billion worth of vehicles from Mexico, leading all countries, and $37 billion from Canada. Additionally, $78 billion worth of auto parts came from Mexico, while Canada supplied $20 billion in parts. Notably, engines for popular models like Ford’s F-series and the Mustang originate from Canada.
“This is a scenario where engines and car components cross the borders several times before reaching completion,” remarked Lincicome from Cato Institute. “American parts are sent to Mexico to be integrated into vehicles, which are then returned to the U.S.”
He added, “Introducing 25% tariffs into this equation is like throwing a grenade.”
A report released on Tuesday by S&P Global Mobility indicated that importers will likely transfer most, if not all, of this increased cost to consumers. Economic analysts at TD Economics predict that the average price of cars in the U.S. could rise by approximately $3,000, exacerbating a situation where new cars already average around $50,000 and used cars are about $26,000, according to Kelley Blue Book.
**Gas Prices on the Rise**
Canada holds the position of being the largest foreign supplier of crude oil to the United States. Between January and November of last year, Canada exported crude oil worth $90 billion to the U.S., significantly outpacing Mexico, which supplied $11 billion in crude oil.
Many American refineries depend on Canadian crude, as it is the specific type they are designed to process. “It’s a heavier crude oil, while most of what’s produced here in the U.S. is lighter and often not suitable for many refineries, particularly those in the Midwest,” noted Lincicome.
Currently, Trump has not disclosed whether he intends to impose tariffs on oil imports from Canada and Mexico. If he does, Lincicome speculates that the result would likely be higher gasoline prices in the United States, especially in the Midwest. Estimates from TD Economics indicate that tariffs could drive gas prices up between 30 to 70 cents per gallon.
**Effects on Beverage Prices**
The tariffs would also affect prices for popular beverages like tequila and Canadian whisky. In 2023, the U.S. imported tequila worth $4.6 billion and mezcal valued at $108 million from Mexico, while Canada provided $537 million in spirits, including $202.5 million worth of whisky.
Both Mexico and Canada rank as the second and third-largest sources of U.S. spirits imports, behind the European Union, as per the Distilled Spirits Council of the United States. The council also points out that American whiskey is facing a potential upcoming 50% tariff from the European Union starting in March. The introduction of tariffs from Canada and Mexico could trigger further retaliatory measures against the industry.
Chris Swonger, the president and CEO of the council, acknowledged the intent to protect American jobs but warned that tariffs on spirits from neighboring countries could ultimately harm U.S. consumers and lead to job losses across the hospitality sector—part of the same industry still recovering from the COVID-19 pandemic.
**Expensive Groceries Ahead**
For consumers already struggling with high grocery prices, a trade dispute with Canada and Mexico could exacerbate challenges. In 2023, the U.S. imported over $45 billion in agricultural products from Mexico, which accounted for 63% of the vegetables and 47% of fruits and nuts sold in the country. Imports from Canada totaled $40 billion. A potential 25% tariff could lead to significant price increases at grocery stores.
“Grocery stores function on very slim margins,” Lincicome stated. “They won’t absorb the tariffs, especially on items such as avocados, which almost exclusively come from Mexico.” He mentioned that the timing is particularly sensitive with events like the Super Bowl approaching.
American farmers are also apprehensive about potential retaliation from Canada and Mexico, leading to tariffs on U.S. exports, including soybeans and corn—a repeat of events from the previous Trump administration when retaliatory tariffs significantly impacted American agriculture.
“The last time around, farmers saw their sales decline and President Trump had to provide compensation,” remarked Mark McHargue, a Nebraska farmer. While he appreciated the assistance, he expressed a preference for accessing markets through trade relationships rather than relying on government support. “We want to earn our money in the market, not through government checks,” McHargue emphasized.
