UPDATE:
March 6: President Trump has announced a pause on 25% tariffs on U.S. imports from Mexico and Canada that are covered under USMCA. This pause is in effect until April 2nd.
President Donald Trump has moved forward with a sweeping tariff plan that places significant taxes on nearly all imports from Canada and Mexico, a move that could ignite a trade war with America’s closest trading partners and drive up prices for U.S. consumers.
Under the new policy, the U.S. will begin collecting a 25% tariff on most imports from Canada and Mexico starting at 12:01 a.m. Tuesday, according to a draft public notice released Monday. Canadian energy products will face a lower tariff of 10%.
Industries from automotive to alcohol production have warned that these tariffs will have far-reaching consequences, increasing costs and disrupting supply chains. While some companies may seek alternative suppliers or relocate production to the U.S., such adjustments could take years.
In the short term, businesses face two choices: pass the increased costs onto consumers, leading to higher prices, or absorb the tariffs by cutting costs or accepting lower profits.
Trump also expanded tariffs on Chinese imports, adding an additional 10% levy on all goods from China, in addition to the 10% tariff imposed last month on products like electronics, footwear, medicine, and cosmetics. These new tariffs build on trade measures enacted during his first term.
Justification for the Tariffs
Trump has framed the tariffs as a tool to combat illegal immigration and drug trafficking, particularly fentanyl. According to the Drug Enforcement Administration, over 107,000 people died from drug overdoses in 2023, with nearly 70% linked to opioids like fentanyl. Customs and Border Protection data shows that nearly all 21,900 pounds of fentanyl seized in 2024 came from the southern border, compared to just 43 pounds from the northern border.
Escalating Retaliation from Trading Partners
The tariffs have set the stage for a potential trade war, jeopardizing U.S. exports and threatening the U.S.-Mexico-Canada Agreement (USMCA), a key trade deal from Trump’s first term. Under the USMCA, goods were meant to move freely between the three countries without tariffs until at least 2026. However, Trump’s decision to impose new trade restrictions puts the agreement’s future in doubt.
Mexico’s President Claudia Sheinbaum indicated her country would respond by Sunday. Meanwhile, Canada has announced it will impose retaliatory tariffs on $107 billion worth of American goods. The first wave, covering $20.7 billion in products such as orange juice, peanut butter, wine, and coffee, will take effect immediately. Additional tariffs on $86.3 billion in U.S. goods will follow in 21 days and remain in place until the U.S. lifts its trade restrictions.
“Because of the tariffs imposed by the U.S., Americans will pay more for groceries, gas, and cars, and potentially lose thousands of jobs,” Canadian Prime Minister Justin Trudeau said Monday. “These tariffs disrupt a highly successful trade relationship and violate the very agreement President Trump negotiated in his last term.”
China also announced it would retaliate by imposing additional tariffs on U.S. goods starting March 10. The measures include a 15% tariff on chicken, wheat, corn, and cotton, along with a 10% tariff on sorghum, soybeans, pork, beef, fruits, vegetables, dairy, and fish products. Beijing criticized the U.S. tariffs as harmful to global trade and warned they would hurt American businesses and consumers.
Economic Consequences and Industry Reactions
Economists across the political spectrum warn that U.S. consumers will bear the brunt of these tariffs, which could drive up prices on vehicles, electronics, groceries, and lumber. On Monday, the stock market reacted negatively, with the S&P 500 dropping nearly 2%, marking its worst day since December.
Industries Most Affected
Automotive Sector
The auto industry is expected to be among the hardest hit, as vehicles and parts often move between the U.S., Canada, and Mexico multiple times during production.
According to a report from the Anderson Economic Group, the tariffs could add as much as $12,000 to the cost of a new vehicle. The American Automotive Policy Council, representing GM, Ford, and Stellantis, argued that vehicles and parts that already meet USMCA requirements should be exempt from the tariffs.
Aluminum and Manufacturing
The Aluminum Association, representing the U.S. aluminum industry, noted that two-thirds of the primary aluminum used in the U.S. comes from Canada, while 90% of scrap metal is sourced from either Canada or Mexico. Even at full capacity, U.S. smelters cannot meet domestic demand, making tariffs on imported aluminum highly disruptive.
Food and Agriculture
The tariffs could also lead to higher grocery prices, as Mexico supplies a large share of the U.S.’s tomatoes, avocados, berries, and peppers. Rising food costs have been a top concern for consumers, with grocery prices up about 25% over the past four years—an issue Trump has promised to address on the campaign trail.
Additionally, the tariffs could impact the alcohol industry. Mexican and Canadian spirits make up a significant portion of U.S. liquor imports, while American spirits are widely sold in those countries. The Distilled Spirits Council estimates that the tariffs could cost over 31,000 U.S. jobs.
In 2024, the U.S. imported $5.2 billion worth of tequila and $93 million worth of mezcal from Mexico, as well as $622 million in Canadian whiskey. The council warned that tariffs could harm U.S. distillers who rely on these products.
“The North American spirits market is deeply interconnected. Tariffs on tequila and Canadian whiskey will hurt U.S. businesses with these brands in their portfolios,” the group said in a statement.
More Tariffs to Come
Trump has signaled that additional tariffs are on the way. He reiterated Monday that “reciprocal” tariffs will take effect on April 2, targeting agricultural products.
Last month, Trump imposed a 25% tariff on all steel and aluminum imports, raising an earlier 10% tariff from 2018 with no exemptions.
Trump continues to tout tariffs as a strategy to generate revenue for domestic priorities and pressure companies to relocate production to the U.S. However, with growing concerns about inflation, consumer prices, and trade disruptions, the long-term impact of these measures remains uncertain.
For further information, please see Customs and Border Protection’s guidance on Mexico and Canada here.
