On February 1, President Donald Trump officially announced a broad set of tariffs that will hit imports from Canada and Mexico at a rate of 25%. In addition, China isn’t off the hook either—imports from there will now be subject to a 10% tariff.
During his campaign, Trump warned that he would slap tariffs on these countries, arguing they weren’t doing enough to stop an influx of drugs—especially fentanyl—and accusing Canada and Mexico of failing to curb illegal immigration. Although the measures are aimed at boosting border security and controlling drug trafficking, they also serve a broader protectionist agenda.
There’s some nuance in how these tariffs will roll out. For instance, on Friday Trump mentioned that tariffs on oil and gas would only kick in on February 18. Moreover, Canadian oil might face a lower tariff of 10% rather than the full 25%. This move against Canada and Mexico comes amid a series of threats aimed at China—previously, Trump had even floated the idea of imposing tariffs as high as 60% on Chinese imports to bring jobs back to the United States.
What Trump Hopes to Achieve
Officially, Trump cites border security and drug prevention as the reasons for these tariffs. But the underlying motive is also clearly protectionist. Throughout his campaign, he positioned himself as a defender of American workers, often praising tariffs as “the most beautiful word in the dictionary.” His approach reflects a broader skepticism towards international trade—a sentiment shared across parts of the US political spectrum.
This new tariff policy represents a marked shift in the traditionally close trade relationships among the US, Canada, and Mexico. These countries are not just neighbors but also key players in the United States-Mexico-Canada Agreement (USMCA), the modern successor to NAFTA. Trump has openly used tariffs in the past as a tool to pressure other nations to change their policies, as seen when he successfully pressured Colombia by threatening tariffs over an aviation dispute.
Economic Implications
The economic ties between the US, Canada, and Mexico run deep. In 2022 alone, trade between the US and Canada was valued at around US$909 billion, while trade with Mexico exceeded US$855 billion. Key industries like automotive manufacturing, energy, agriculture, and consumer goods all rely heavily on the smooth flow of goods across these borders.
The automotive sector, for example, could be hit particularly hard. Vehicles assembled in North America depend on a steady supply of parts from all three countries, and tariffs would likely increase production costs, eventually leading to higher prices for consumers and less competitive American manufacturing.
Agriculture is another vulnerable area. The US exports billions of dollars’ worth of corn, soybeans, and meat to its neighbors, while it imports fresh produce like avocados and tomatoes from Mexico. Any new tariffs could spark a chain reaction of retaliatory measures, putting farmers and food suppliers at risk.
It’s worth noting that tariffs on oil were delayed and set at a lower rate for a reason: US imports of Canadian oil have grown over the decades, and immediate higher tariffs would have hurt US consumers directly by raising fuel prices.
Lessons from the Past
This isn’t the first time we’ve seen Trump’s tariff strategy in action. In 2018, he imposed duties on steel and aluminum—industries where both Canada and Mexico are major players. That move led to retaliatory tariffs from both countries until a resolution was eventually reached as part of the negotiations that resulted in the USMCA.
Interestingly, many of Trump’s tariff policies persisted even after President Joe Biden took office, highlighting a bipartisan trend towards questioning free trade and favoring policies that promote onshoring or reshoring manufacturing jobs in the US.
How Canada and Mexico Might Respond
Both Canada and Mexico have already signaled that they might retaliate with tariffs of their own. They could target sectors that are politically sensitive in the US—like agriculture or gasoline—in hopes of applying pressure where it would be most painful politically for Trump’s base.
There are also legal avenues available. Both countries could challenge these tariffs under the dispute resolution mechanisms provided by the USMCA or even take the case to the World Trade Organization (WTO). However, such legal battles can be lengthy, uncertain, and may not offer an immediate remedy.
In the longer term, businesses in Canada and Mexico might try to diversify their trade relationships to rely less on the US market. But given the geographical proximity and the size of the US consumer base, that is easier said than done.
The Bigger Picture: A Warning of Global Trade Tensions
Trump’s latest move is a stark reminder of how the “Overton window” is shifting. This concept refers to the range of policies considered acceptable by the general public. Over recent years, arguments for bringing critical industries back to the US, safeguarding domestic jobs, and reducing dependence on foreign supply chains have gained significant traction—especially in the context of rising concerns over China’s economic and geopolitical influence. These arguments, which gained further momentum during the COVID-19 pandemic, are now translating into concrete policies.
The risk of a broader trade conflict looms large. While Trump’s immediate goal may be to extract concessions from neighboring countries using tariffs as leverage, similar tactics—like his threats against Denmark over Greenland—suggest a willingness to use trade as a geopolitical weapon. Such actions could lead to a cascading series of retaliatory measures, shaking global markets, eroding trust among trading partners, and ultimately causing widespread economic disruption.
In summary, these new tariffs mark the beginning of what could be a significant reshaping of not only North American trade but also the international order, as nations grapple with balancing domestic interests against the realities of global interdependence.
