Fun Fact: 12 of the 13 Canadian provinces import and export more goods from other countries than they import and export from other provinces. When factoring in services, only six of the 13 Canadian provinces trade more with each other than they do with other countries.

Tariffs Are Back on the Menu

What’s Happening: On February 24, during a press conference with the president of France, President Trump said that heretofore dormant 25-percent tariffs on Canada and Mexico will take effect on the March 4 deadline. Today, February 27, Trump reconfirmed that the tariffs are on schedule, with an additional 10-percent tariff on China to be implemented as well. These across-the-board tariffs on the largest U.S. trade partners were initially scheduled for February 4 but were delayed after Mexico agreed to deploy its national guard to combat illegal immigration and drug trafficking and Canada agreed to a host of border security measures (see more here). Trump initially cited his authority to levy tariffs under the International Emergency Economic Powers Act (IEEPA) to address what he has labeled national emergencies concerning the flow of fentanyl and illegal immigration; on Monday, Trump cited the general “mistreatment” of the United States as reason enough for tariffs to go through. He has since circled back to the argument that these tariffs are meant to address the fentanyl crisis and may be lifted once (unspecified) progress is made. The IEEPA authority was previously untested as a mechanism for implementing tariffs, but it has since been used by the president to impose an additional 10-percent tariff on China.

Why It Matters: Mexico and Canada make up 28 percent of total U.S. imports and account for 31 percent of U.S. exports, according to 2024 trade data. The United States is 100-percent reliant on Mexico for 92 imports and Canada for 396 imports, together valued at over $39 billion. Given that U.S. consumers and businesses import these products solely from Mexico and Canada, it is likely that the burden of tariffs would entirely be passed along to consumers and businesses, which cannot evade them by purchasing substitutes from elsewhere. A complete pass through of 25-percent tariffs would equate to more than $225 billion in additional annual costs for U.S. consumers. When accounting for tariff evasion and other offsets on goods for which there are substitutes, annual costs come closer to $120 billion, according to the Shipment’s calculations. Leading up to the March 4 deadline, there will likely be a large market selloff, turbulence in the global economy, and an appreciation of the U.S. dollar unless a deal is struck beforehand. As for the additional 10-percent tariffs on China, this will impact roughly 13 percent of U.S. imports, spark more retaliatory measures from China, and may increase annual consumer costs by up to $25 billion.

Looking Ahead: As of now, there is no clear path for Mexico and Canada to negotiate away U.S. tariffs. One idea may be to be offer President Trump guarantees to crack down on illegal immigration and the flow of fentanyl into the United States. Another potential solution may be formulating a new U.S.-Mexico-Canada Agreement with new terms that address the Trump Administration’s concerns of losing U.S. manufacturing jobs. This could be done with updated content requirements for products, such as a higher percentage of vehicle components required to come from North America, or the United States in particular.

Upcoming Tariffs:

March 4: 25-percent tariffs on all imports from Mexico and Canada may take effect alongside a 10-percent tariff on China.

March 12: 25-percent tariffs on steel and aluminum may take effect.

April 1: Target date for USTR trade policy review and recommendations.

April 2: Reciprocal tariffs on many or all countries may take effect.

Unspecified Date: Various tariffs on pharmaceuticals, semiconductors, automobiles, copper, the EU, and BRICS countries.

Graphic Explanation

These charts display the value of U.S. imports from and exports to Mexico and Canada by how reliant the United States is on those countries. For example, 92 different U.S. imports valued at $9.5 billion are sourced 100 percent from Mexico. Additionally, 190 U.S. imports worth nearly $38.5 billion are sourced between 90—99 percent from Mexico. Furthermore, 75 U.S. exports valued at $900 million are 100 percent exported to Mexico. This analysis used 2023 Dataweb import and export data with 10-digit HTS codes.