In a move set to reshape international trade dynamics, President Donald Trump has imposed sweeping tariffs on the United States’ key trading partners—Canada, Mexico, and China.
The new tariffs, taking effect Tuesday, have already triggered swift retaliatory responses from Canada and Mexico, while China has vowed to take “necessary countermeasures.”
North America’s Economic Crossroads
Trade between the U.S. and its North American neighbors now surpasses its economic ties with China. In 2023, U.S.-Canada-Mexico trade amounted to $1.8 trillion, dwarfing the $643 billion exchanged between the U.S. and China. The tariffs could disrupt this significant economic partnership, causing ripple effects across multiple industries.
Declaring an economic emergency on Saturday, Trump authorized a 10% tariff on all imports from China and a 25% tariff on imports from Canada and Mexico. Energy imports, including oil, natural gas, and electricity from Canada, will be taxed at a reduced 10% rate.
Automotive Industry Faces Supply Chain Shock
One of the hardest-hit sectors will be the auto industry, where manufacturers have long relied on supply chains that traverse North American borders. According to S&P Global Mobility, more than one in five vehicles sold in the U.S. in 2023 were assembled in Canada or Mexico. The U.S. imported $69 billion worth of cars and light trucks from Mexico and $37 billion from Canada, along with billions in auto parts from both countries.
“You have engines and car seats crossing the border multiple times before going into a finished vehicle,” said Scott Lincicome, a trade analyst at the Cato Institute.
“A 25% tariff is like lobbing a grenade into the industry.”
S&P Global Mobility predicts that automakers will pass most, if not all, of these costs to consumers. TD Economics estimates that U.S. car prices could rise by an average of $3,000, adding to the already soaring cost of new and used vehicles.
Oil and Gas Prices on the Rise
The impact of the tariffs extends to energy markets as well. Canada remains the U.S.’s largest crude oil supplier, shipping $90 billion worth of crude oil in 2023.
“For many U.S. refineries, there’s little choice—Canadian crude is the type of oil that American refineries are set up to process,” Lincicome explained.
“A tariff on Canadian oil could translate into higher gas prices, particularly in the Midwest.”
TD Economics estimates that gas prices in the U.S. could rise by 30 to 70 cents per gallon as a result of the new tariffs.
The Cost of a Toast: Tequila, Whisky, and Spirits
Alcoholic beverages are also set to become more expensive. The U.S. imported $4.6 billion worth of tequila and $108 million of mezcal from Mexico in 2023, along with $537 million in Canadian spirits, including $202.5 million in whisky.
Chris Swonger, CEO of the Distilled Spirits Council, warned that these tariffs could hurt the hospitality industry.
“Tariffs on spirits from Canada and Mexico will ultimately burden U.S. consumers and cost American jobs, just as the industry recovers from the pandemic,” he said.
The U.S. is already bracing for a 50% tariff on American whiskey from the European Union, set to take effect in March, further exacerbating tensions in the global spirits market.
Grocery Prices Under Pressure
For U.S. consumers already facing high grocery prices, the tariffs could deal another blow. In 2023, the U.S. imported $45 billion worth of agricultural products from Mexico and $40 billion from Canada. Mexico alone supplied 63% of imported vegetables and nearly half of all imported fruits and nuts.
“Grocery stores operate on razor-thin margins,” Lincicome said. “They can’t absorb these costs, so consumers will feel the pinch, especially on products like avocados—90% of which come from Mexico. That means pricier guacamole just in time for the Super Bowl.”
Farmers Brace for Retaliation
U.S. farmers are also on edge, fearing retaliatory tariffs from Canada and Mexico. American agricultural exports, including soybeans and corn, were previously targeted in response to Trump’s first round of tariffs. To compensate for losses, Trump authorized billions in federal aid to farmers, a move that some in the industry remain uneasy about.
“It softened the blow, but we’d rather make money from the market than rely on government checks,” said Mark McHargue, a Nebraska farmer and president of the Nebraska Farm Bureau.
As trade tensions escalate, the impact of these tariffs will unfold in the coming months, reshaping consumer costs, industry dynamics, and U.S. relations with its largest economic partners.
