Stiff Tariffs on Canadian, Mexican Imports Could Push Up Prices, Reignite Inflation
President Trump announced stiff tariffs on Canadian, Mexican and Chinese imports, sparking a new trade war and risking higher U.S. consumer prices on energy, cars, lumber, medicine, fruits and electronics. The Mexican and Canadian tariffs were delayed by a month while the Chinese tariff went into effect.
Before the 25 percent Mexican tariff went into effect, Trump negotiated a one-month delay with Mexican President Claudia Sheinbaum who promised to send an additional 10,000 soldiers to the U.S-Mexico border to interdict fentanyl shipments and illegal immigrants, a commitment made earlier to President Biden.
Canadian Prime Minister Justin Trudeau also convinced Trump to delay a 25 percent tariff for 30 days.after agreeing to appoint a fentanyl czar and implement the $900 million border plan his government announced in December.
Trump had his own motivation to cut a deal. Major business and farm groups warned tariffs and a trade war would raise prices and hurt the U.S. economy. To emphasize the point, the stock market plunged 600 points at its opening on Monday, then mostly recovered with news that Mexican and Canadian tariffs had been paused.
Meanwhile, the 10 percent Chinese tariff went into effect today, prompting an immediate response. China slapped counter-tariffs of 15 percent on U.S. coal and liquefied natural gas exports and 10 percent on crude oil, agricultural machinery and large-engine car exports. Sales will take a hit for new exports including GM’s Chevrolet Tahoe and GMC Yukon and Ford’s Mustangs and F-150 Raptor pickups. The Chinese also opened an antitrust investigation of Google.
President Trump ordered the tariffs over the weekend, prompting leaders in Canada and Mexico to vow dollar-for-dollar retaliatory tariffs against the United States, especially targeting red states. A Canadian MP said Kentucky bourbon had been pulled from stores in Canada. Texas Governor Greg Abbott responded by threatening additional state-level trade restrictions, making the looming trade war seem more like a WWE cage match.
Trump defends tariffs as penalties on Mexico, Canada and China for contributing to the flow of fentanyl and illegal immigration into the United States. He also blames America’s three largest trading partners for the current $78 billion U.S. trade deficit. The trade imbalance rose sharply in November after Trump’s election as U.S. importers purchased goods in anticipation of tariffs.
Despite promising on the campaign trail to bring down grocery prices, Trump now concedes tariffs will push up prices, though he calls it short-term pain for long-term gain.
Impacts From Canadian Tariffs
The 25 percent tariff on Canadian imports will apply to everything except crude oil, natural gas and electricity, which will be under a 10 percent tariff. Even the lower tariff will sting Oregon utility consumers, who have been hit with large rate increases over the past four years to pay for a modernized transmission grid.
Robert McCullough of McCullough Research, a Portland-based energy consultant, told The Oregonian previous spikes in Canadian gas prices showed up immediately in U.S. wholesale electricity prices paid by utilities. “There is no, ‘What happens in Alberta, stays in Alberta’ rule,” he said, describing a tariff on fuel sources as effectively a tax on U.S. purchasers.
Patrick De Haan, head of petroleum analysis at GasBuddy, told CBS News the tariff on Canadian oil “could add 30 to 40 cents a gallon at the pump within days of the new duties taking effect.”
Canada also is a major supplier of lumber, wood and cement used by the U.S. construction industry. Tariffs could put additional upward pressure on housing prices and slow efforts to build more affordable housing.
The construction industry – along with the agricultural, health care, hospitality and other sectors – are also bracing for workforce impacts caused by Trump’s deportation of undocumented immigrants.
Grocery, Car Prices Will Take a Hit
Tariffs on imports from Mexico and Canada will put upward pressure on grocery prices. The United States imported more than $45 billion in Mexican agricultural products in 2023 from fresh fruit, beef, tequila and beer. Canadian food exports to the United States, which include beef, pork, grains, potatoes and canola oil, totaled $40 billion.
“Grocery stores operate on really tiny margins,” Scott Lincicome, vice president of general economics at the Cato Institute said in comments to CBS News. “They can’t eat the tariffs … especially when you talk about things like avocados that basically all of them – 90 percent – come from Mexico. You’re talking about guacamole tariffs right before the Super Bowl.”
The sticker price on cars will be affected, perhaps as much as $3,000 per vehicle. One source said U.S. auto dealers imported $69 billion worth of cars and light trucks from Mexico and another $37 billion from Canada in 2023. And that doesn’t count auto parts – Mexico exported $78 billion in 2023 and Canada exported $37 billion, including engines for Ford pickup trucks.
Trump View on Tariffs
Trump continues to insist import tariffs are paid by exporting countries. At an August 17 campaign event, Trump said, “A tariff is a tax on a foreign country. That’s the way it is whether you like it or not. A lot of people like to say, ‘Oh it’s a tax on us.’ No, no, no. It’s a tax on a foreign country. It’s a tax on a country that’s ripping us off and stealing our jobs.”
However, the nearly unanimous view of economists and business leaders is that importers actually foot the bill for tariffs and pass the expense along to customers through higher prices. The anticipated inflationary impact of Trump’s latest tariffs was a factor last week in the Federal Reserve’s decision not to lower interest rates.
The guru behind Trump’s faith in tariffs is Robert Lighthizer, his top trade negotiator in his first term and still the voice in his ear on trade policy. In Lighthizer’s view, the real rationale for tariffs is the growing economic and military threat posed by China.
“China views itself as number one in the world and wants to be that way,” Lighthizer said in a 60 Minutesinterview aired Sunday. “They view us as in the way. They have the biggest army in the world and they’re growing it, the biggest navy in the world, and they’re growing it. They’re spying on us, they are taking our technology, they’ve been waging an economic war against the United States and winning that war for at least the last three decades.”
He added, “We’ve lost electronics. We’ve lost textiles. We’ve lost chemicals in a large way. We invented the semiconductor. Now we make 8 percent of semiconductors for the world. And none of the really high-tech ones. More than half of the cars sold in America are now imports… You add it all up, you can get to around $1 trillion a year of wealth from the United States being transferred to a geopolitical adversary.”
Lighthizer couples tariffs with tax cuts, regulatory changes and lower federal spending as the tonic to restore U.S. economic health. “We need tariffs. In my judgment, we need subsidies in certain areas, and we need an economic policy and a military strategic policy that rises up to the challenge.”
In his first term, Trump levied stiff tariffs on Chinese goods. Now he is ordering a smaller 10 percent tariff while calling for a broader review of U.S.-Chinese trade relations and amid an awkward negotiation by Trump to avoid implementation of the TikTok ban approved by Congress.
What Retaliation Could Look Like
Canada and Mexico have threatened to retaliate against Trump’s latest tariffs, although Canada’s economy is already on shaky ground and imposing tariffs on exports to the United States could compound its economic problems. More than 75 percent of Canada’s exports go the United States, while only 17 percent of U.S. exports go to Canada.
In the Trump 1.0 tariff war, Canada responded with selective tariffs on U.S. aluminum and steel at amounts that equaled the tariffs on Canadian exports to the United States, which was estimated at more than $16 billion in Canadian dollars. Observers predict this round of dollar-for-dollar tariffs would be much higher level and potentially in more selective ways.
One response under consideration is to restrict or even cut off oil exports and energy supplies, which could put pressure on utility rates and gas prices. A BBC report indicated 30 U.S. states in the West and Midwest receive some of their electricity from Canadian sources. Canada supplies 60 percent of the crude oil imported by the United States, which is five times the amount supplied by Mexico, the next largest supplier
