US President Donald Trump has officially imposed new tariffs on imports from Canada, Mexico, and China, marking a significant shift in US trade policy. Starting today, imports from Canada and Mexico will face a 25% tariff, while Chinese goods will be taxed at 10%. The move aims to combat the illegal fentanyl trade. Tariffs are taxes on imported goods, paid by the importing companies, who may pass the increased costs onto consumers, leading to higher vehicle prices and potentially lower demand.
The US dollar strengthened against the Mexican peso and Canadian dollar, while stock markets saw declines. Investors, seeking safe-haven assets, pushed gold prices to a record high of over $2,800 per ounce. The tariffs could increase production costs for US businesses that rely on imported materials such as aluminum, timber, and electronics.
US Imports from Top Trading Partners
The United States’ top three trading partners in terms of imports are China, Mexico, and Canada. In 2022, China accounted for approximately $536 billion in goods supplied to the US, followed by Mexico with $455 billion and Canada with $437 billion, according to the US Trade Representative.
The U.S. imports oil, lumber, wood, and cement from Canada, while over 20% of its agricultural products come from Mexico. A 25% tariff could cause Canada’s GDP to drop by 3.6% and Mexico’s GDP by 2%, compared to just a 0.3% decline for the US economy.
1. Food Prices Set to Spike
Consumers already dealing with inflation may face a significant price surge on fruits, vegetables, and nuts imported from Mexico, including avocados, just ahead of the Super Bowl. In 2023, the U.S. imported over $45 billion in agricultural products from Mexico, including strawberries, tomatoes, and beef, along with beer and tequila. Additionally, about $40 billion in Canadian agricultural goods, such as beef, pork, and grains, were imported. A 25% tariff could push prices up for these goods. According to Scott Lincicome of the Cato Institute, grocery stores, which operate on slim margins, cannot absorb the added costs.
Meanwhile, Canada has prepared countermeasures, including tariffs on US agricultural products such as Florida orange juice, and is considering additional retaliatory actions.
2. Electronics Sector Hit
If fully implemented, the tariffs will affect approximately $1.6 trillion in annual trade between the US, Canada, and Mexico, dismantling over 30 years of free trade agreements under NAFTA and USMCA. The agriculture and electronics sectors will be among the hardest hit, with price hikes and supply chain disruptions expected. Canadian Prime Minister Justin Trudeau warned that 75% of Canada’s exports go to the US, making these tariffs a severe threat to the Canadian economy.
3. Auto Industry Faces Price Hikes
American consumers are increasingly purchasing cars made in Canada or Mexico, or using parts from these countries. In 2023, the U.S. imported $69 billion in vehicles from Mexico and $37 billion from Canada, along with $78 billion in auto parts from Mexico and $20 billion from Canada. A 25% tariff could add about $3,000 to the price of a car. Automakers like General Motors may need to adjust their strategies to manage cost increases due to integrated supply chains across North America. Nearly every major automaker in the U.S. has a plant in Mexico, making the auto industry highly interconnected.
4. Gold Prices Surge
Gold reached an all-time high as investors sought safe-haven assets in response to Trump’s tariff threats against Mexico and Canada. On Friday, gold topped $2,800 per ounce, driven by market uncertainty and investor apprehension regarding the economic impact of the tariffs.
5. Impact on Oil and Gas Prices
The tariffs come at a politically sensitive time for Trump, just two weeks into his second term. While his administration argues the tariffs will protect American industries, economists warn that they could backfire by raising costs for U.S. consumers and disrupting key sectors like energy, automotive, and agriculture. The tariffs could potentially drive up gas prices and commodity costs.
Trump plans to impose 25% tariffs on imports from Canada and Mexico starting February 1, with crude oil imports potentially taxed at a lower 10%. US oil producers and refiners are concerned about significant disruptions in North American energy markets. The American Petroleum Institute has urged that crude oil be excluded from the tariffs. Tariffs on Canadian and Mexican imports could raise US Atlantic coast fuel prices and affect refinery operations, with Valero estimating a 10% cut in refinery runs.
As these tariffs take effect, the world is bracing for potential retaliatory measures and continued economic uncertainty. The coming weeks will be crucial in determining whether these tariffs mark the beginning of a trade war or if diplomatic negotiations can ease tensions.