Decades of trade integration in North America are on the brink of major disruption due to tariffs President Trump has said he wants to impose on Canada and Mexico, the United States' main trading partners.
While the tariffs are predicted to hurt all three countries, they will hurt Canada and Mexico, smaller economies that are deeply dependent on the US, more.
Officials in both countries breathed a brief sigh of relief on Monday when Mr Trump stopped short of making the tariffs part of a blizzard of executive orders on his first day in office. But the relief was short-lived: Mr Trump told reporters later in the evening that he still planned to push ahead with the tariffs.
“We're thinking in terms of 25 percent in Mexico and Canada,” Mr. Trump said in the Oval Office. “I think we'll do it on February 1st.”
Trade experts are weighing whether the tariffs will materialize or whether the threat is just a negotiating tactic aimed at winning concessions from Mexico and Canada. Both countries avoided tough tariffs during the first Trump administration, and both argue that the U.S. needs Mexico and Canada to take on its larger rival, China.
Economists and politicians say the tariffs will cause lost income and jobs, and force consumers to pay more for many products.
Mr. Trump on Monday signed the order directing federal agencies to conduct a broad review of US trade policies that could result in future actions against Mexico and Canada.
Mr. Trump's promised tariffs are likely to be met with retaliatory tariffs from Canada and Mexico, opening up tightly integrated production lines and supply chains in North America.
More than $1.5 trillion worth of goods will be on the line — the total value of all goods traded between the U.S. and Canada, and the U.S. and Mexico. (This is the total value of these trade ties in 2023, according to US government data, the most recent available.)
Economists predict the initial impact will be negative for all three countries bound by the free trade agreement known as the USMCA (United States-Mexico-Canada).
The negative effect is difficult to put into hard numbers: not only is it unclear what specific items Mr. Trump will target and how Mexico and Canada will respond, but the results could change over time, including rising inflation as goods become more expensive. , job losses and reduced spending as consumers worry about falling incomes.
And governments often intervene to mitigate some of these negative impacts. Canadian government officials have already said they will consider bailing out businesses and supporting the most affected workers.
But some industries will be disrupted quickly: agriculture, automobiles and energy suppliers, pillars of all three economies, will be raised at regular rates.
United States of America
A few pockets of industry in the United States would welcome a 25 percent tariff on goods from Canada and Mexico — such as American growers of tomatoes and other seasonal fruits and vegetables that struggle to compete with their Mexican counterparts.
But most industries will be hit hard by the economic disruption of such high tariffs.
Even groups that might favor more protection against Mexican exports, such as U.S. auto workers, could suffer if tariffs suddenly bring auto supply chains to a standstill. Both the United Auto Workers and the United Steelworkers International also straddle the US-Canada border and include members in Canada, meaning they typically oppose any restrictions on Canadian exports.
Because the United States is the largest economy in North America and the least dependent on trade, the proportional impact on the US economy will be less than on the economies of Mexico or Canada.
But tariffs will raise prices for consumers and add inflation. American households and businesses can expect to pay higher prices for a variety of goods subject to the tariffs, including avocados, beer, steel, automobiles and oil.
These high prices will discourage purchases and likely slow the economy. Researchers at the Peterson Institute for International Economics in Washington to guess Imposing a 25 percent tariff on all Mexican and Canadian exports would reduce the U.S. gross domestic product by nearly $200 billion during a second Trump administration.
US industries that export to Canada and Mexico are also likely to suffer if those countries retaliate and impose tariffs on US goods. Government of Canada made plans to target Orange juice from Florida, whiskey from Tennessee and peanut butter from Kentucky, and the Mexican government. their response plans.
Canada
US-Canada trade relations are characterized by some features eye-catching facts emphasizes the close economic, industrial and trade relations between the countries.
About $2.5 billion worth of goods are traded across the border every day, making it an $800 billion annual trade link.
For the auto industry, the US-Canada border can often seem insignificant, with a single car crossing back and forth eight times before it is fully assembled.
Canada exports 80 percent of its oil to the United States, which imports half of its oil from Canada. And Canadian energy powers homes and businesses in the United States, particularly in New England, where Quebec exports hydroelectric power.
Canada, on the other hand, sends other important goods to the United States, such as potassium, which is used in fertilizers, and uranium, which is needed for nuclear power generation.
If Mr. Trump pursues tariffs, the fallout will depend on how broad they are or whether some Canadian goods, such as oil, may be exempt. But for Canada, the result could be devastating.
Economists predict a loss of economic output of 2 percent to 2.6 percent annually. More than a million jobs across Canada will be at risk, including nearly half a million in Ontario's auto industry, according to provincial Premier Doug Ford.
If tariffs were imposed on Canadian energy and Canada responded by restricting oil exports, the impact would be felt across the country, particularly in Alberta, Canada's oil-exporting hub.
Alberta's leader has rejected a federal government plan to use oil as a pressure tool to dissuade the Trump administration from imposing tariffs.
Mexico
Mexico stands out among major economies for its dependence on trade with the United States, sending about 80 percent of its exports to its neighbor, many of which come from factories operating within 30 miles of the border.
Since these plants are largely focused on serving the US market, this makes Mexico more vulnerable to tariffs than a large industrial economy like Germany, which can more easily direct its exports to different markets.
The 25 percent tariffs would be devastating for Mexico, said Marcus Noland, executive vice president and director of research at the Peterson Institute for International Economics.
“In fact, it will start the process of deindustrialization of Mexico,” he said.
Such tariffs could reduce Mexico's economic productivity growth by about 2 percentage points, potentially resulting in large-scale factory closings and job losses, Mr. Noland estimates. Mexico's auto industry, which employs more than a million people and relies heavily on complex supply chains that transport parts across the border, could be particularly vulnerable.
Other sectors of the Mexican economy may come under severe pressure in the face of steep tariffs. Automobiles, computers, cables, telephones and medical instruments are among Mexico's largest exports.
Agriculture is another weak spot for Mexico, which accounts for 63 percent of U.S. vegetable imports and 47 percent of U.S. fruit and nut imports. Tariffs could affect iconic products such as avocados, which have seen increased demand among American consumers since the United States began importing them from Mexico.
Kimberley Sperrfechter, an emerging markets economist at Capital Economics in London, cited the budget as saying that Mexico's ability to cushion the impact from the tariffs is also limited by budgetary problems. deficiency In 2024, it reached its highest level in decades.
One sector of the Mexican economy that could benefit from the tariffs is the tourism industry. If the tariffs are imposed, the country's currency, the peso, could weaken, Ms. Sperrfechter said, making Mexico even more attractive to U.S. tourists, who represent the country's largest group of international visitors.
“However,” he added, “this is unlikely to compensate for the blow to other sectors.”