President Donald Trump said Monday that 25% taxes on imports from Mexico and Canada would start Tuesday, sparking renewed fears of a North American trade war that already showed signs of pushing up inflation and hindering growth.
“Tomorrow — tariffs 25% on Canada and 25% on Mexico. And that’ll start,” Trump told reporters in the Roosevelt Room. “They’re going to have to have a tariff.”
What will that mean for you and what can you expect?
What is happening?
In February, Trump put a 10% tariff on imports from China. He reemphasized Monday that the rate would be doubling to 20% on Tuesday.
Trump provided a one-month delay in February as both Mexico and Canada promised concessions. But Trump said Monday that there was “no room left for Mexico or for Canada” to avoid the steep new tariffs, which were also set to tax Canadian energy products such as oil and electricity at a lower 10% rate.
Now, those tariffs are taking effect Tuesday.
Politics
Trump has declared an economic emergency in order to justify the duties, marking the most aggressive use of tariffs by the United States since the 1930s.
Energy imported from Canada, including oil, natural gas and electricity, will be taxed at a lower 10% rate — a concession to households in the U.S. Northeast and Midwest that depend on Canadian energy.
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In addition, however, Trump shared a message to farmers saying "tariffs will go on external product" starting next month.
“To the Great Farmers of the United States: Get ready to start making a lot of agricultural product to be sold INSIDE of the United States,” Trump wrote on Truth Social on Monday. “Tariffs will go on external product on April 2nd. Have fun!”
Trump plans to roll out what he calls “reciprocal” tariffs in April that would match the rate charged by other countries, including any subsidies and and value added taxes charged by those countries.
The U.S. president has already announced the removal of exemptions from his 2018 tariffs on steel and aluminum, in addition to tariffs on autos, computer chips, copper and pharmaceutical drugs.
What are tariffs?
In the U.S., tariffs aim to discourage companies importing goods from places like China by making them pay more for the items they are trying ship in.
They are typically charged as a percentage of the price a buyer pays a foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.
Why is Trump imposing tariffs?
Trump has said the tariffs are to force the two U.S. neighbors to step up their fight against fentanyl trafficking and stop illegal immigration. But Trump has also indicated that he wants to even the trade imbalance with both countries as well and push more factories to relocate in the United States.
The Trump administration remains confident that tariffs are the best choice to boost U.S. manufacturing and attract foreign investment. Commerce Secretary Howard Lutnick said Monday that the computer chipmaker TSMC had expanded its investment in the United States because of the possibility of separate 25% tariffs.
What will this mean for you?
Trump's comments quickly rattled the U.S. stock market, with the S&P 500 index down 2% in Monday afternoon trading. It's a sign of the political and economic risks that Trump feels compelled to take, given the possibility of higher inflation and the possible demise of a decades-long trade partnership with Mexico and Canada.
“It’s going to have a very disruptive effect on businesses, in terms of their supply chains as well as their ability to conduct their business operations effectively,” said Eswar Prasad, an economist at Cornell University. “There are going to be inflationary impacts that are going to be disruptive impacts.”
Prasad cautioned that some of the cost increases from the tariffs would be offset by the U.S. dollar increasing in value. But a stronger dollar could also make American made goods less competitive in foreign markets, possibly making it harder for Trump to close the trade imbalance.
All three countries — America's top trading partners — are threatening retaliation.
The United States last year did nearly $2.2 trillion in the trade of goods — exports plus imports — with the countries the president is targeting: $840 billion with Mexico, $762 billion with Canada and $582 billion with China.
In Illinois, Gov. J.B. Pritzker previously said "no other state in the nation imports more goods to Canada than the Land of Lincoln." He also said Illinois is one of the top five states in exports to both Canada and Mexico.
"All together, Illinois exports support 800,000 jobs," Pritzker wrote on social media, adding those jobs are "now at risk."
"The people of Illinois, the people of the United States, are going to pay the price for what Donald Trump is doing," Pritzker said in an interview on MSNBC's "The Weekend." "Let me tell you, Canada and Mexico are our two largest trading partners here in Illinois. We get most of our natural gas and also gasoline from north, right from Canada. So, when you impose a 25% tariff, you're imposing that tariff on working families in Illinois."
Companies ranging from Ford to Walmart have warned about the negative impact that tariffs could create for their businesses. Similarly, multiple analyses by the Peterson Institute for International Economics and the Yale University Budget Lab suggest that an average family could face price increases of more than $1,000.
The following are just a few imported goods whose prices may be hit first:
Auto production
For decades, auto companies have built supply chains that cross the borders of the United States, Mexico and Canada. More than one in five of the cars and light trucks sold in the United States were built in Canada or Mexico, according to S&P Global Mobility. Last year, the United States imported $79 billion worth of cars and light trucks from Mexico – far more than any other country -- and $31 billion from Canada. Another $81 billion in auto parts came from Mexico and $19 billion from Canada. The engines in Ford F-series pickups and the iconic Mustang sports coupe, for instance, come from Canada.
“You have engines and car seats and other things that cross the border multiple times before going into a finished vehicle,’’ said Scott Lincicome, a trade analyst at the libertarian Cato Institute. “You have American parts going to Mexico to be put into vehicles that are then shipped back to the United States.
“You throw 25% tariffs into all that, and it’s just a grenade.’’
China is also a major supplier of auto parts to the U.S. — $18 billion worth last year.
S&P Global Mobility reckons that “importers are likely to pass most, if not all, of this (cost) increase to consumers.’’ TD Economics notes that average U.S. car prices could rise by around $3,000 – this at a time when the average new car already goes for nearly $49,000 and the average used car for $25,000, according to Kelley Blue Book.
Higher prices at the pump
Canada is by far America’s biggest foreign supplier of crude oil. In 2024, Canada shipped the U.S. $98 billion worth of crude, well ahead of No. 2 Mexico at $12 billion.
For many U.S. refineries, there’s not much choice. Canada produces the “type of crude oil that American refineries are geared to process,’’ Lincicome said. “It’s a heavier crude. All the fracking and all the oil and gas we make here in the United States – or most of it – is a lighter crude that a lot of American refineries don’t process, particularly in the Midwest.’’
Of the tariffs on Canadian oil imports, Lincicome said, “how the heck does that shake out? My guess is that it shakes out just through higher gas prices, particularly in the Midwest.’’
Computers, clothes and toys
Tariffs on China could impact a wide variety of consumer goods that Americans depend on. Cell phones, computers and other electronic devices were among the top imports from China last year, according to Commerce Department data.
The U.S. also imported more than $32 billion in “toys, games and sporting goods” from China last year, data shows.
And Americans import billions of dollars a year in clothing from China. That includes more than $7.9 billion in footwear last year, according to Commerce Department data.
Tequila and whisky
Tariffs could raise the price for those raising a glass of tequila or Canadian whisky.
In 2023, the U.S. imported $4.6 billion worth of tequila and $108 million worth of mezcal from Mexico, according to the Distilled Spirits Council of the United States, a trade group. The U.S. imported $537 million worth of Canadian spirits, including $202.5 million worth of whisky.
Canada and Mexico were also the second- and third-largest importers of U.S. spirits in 2023, behind the European Union, the council said.
The council said the U.S. is already facing a potentially devastating 50% tariff on American whiskey by the European Union, which is set to begin in March. Imposing tariffs on Mexico and Canada could pile even more retaliatory action on the industry.
Chris Swonger, the council’s president and CEO, said he appreciates the goal of protecting U.S. jobs. But tequila and Canadian whisky – like Kentucky bourbon -- are designated as distinctive products that can only be made in their country of origin.
“At the end of the day, tariffs on spirits products from our neighbors to the north and south are going to hurt U.S. consumers and lead to job losses across the U.S. hospitality industry, just as these businesses continue their long recovery from the pandemic,” Swonger said.
Mexican avocados
For American consumers still exasperated by high grocery prices, a trade war with Canada, Mexico and China could be painful. In 2024, the U.S. bought more than $49 billion in agricultural products from Mexico –- including 47% of imported vegetables and 40% of fruits. Farm imports from Canada came to $41 billion. A 25% tariff could push prices up.
“Grocery stores operate on really tiny margins,’’ Lincicome said. “They can’t eat the tariffs ... especially when you talk about things like avocados that basically all of them – 90% -- come from Mexico. You’re talking about guacamole tariffs.''
U.S. farmers are nervous, too, that Canada and Mexico will retaliate by slapping tariffs on American products such as soybeans and corn. That’s what happened in the first Trump administration. China and other targets of Trump tariffs hit back by targeting the president’s supporters in rural America. Exports of soybeans and other farm products dropped, so Trump spent billions of U.S. taxpayer money to reimburse farmers for lost sales.
“President Trump was as good as his word,’’ said Mark McHargue, a Central City, Nebraska, farmer who grows corn, soybeans, popcorn and raises hogs. “It did take the sting out of it. That’s for sure.’’ But he would prefer to see the government push to open foreign markets to American farm exports. “We would rather get our money from the market,’’ said McHargue, president of the Nebraska Farm Bureau. “It doesn’t feel great to get a government check.’’
What has been the response from Canada, Mexico and China?
“If Trump is imposing tariffs, we are ready," said Canadian Foreign Minister Mélanie Joly. "We are ready with $155 billion worth of tariffs and we’re ready with the first tranche of tariffs, which is $30 billion.”
Joly said Canada has a very strong border plan and explained that to Trump administration officials last week. She said the diplomatic efforts are continuing. She spoke after Trump made his comments Tuesday.
Mexico President Claudia Sheinbaum went into Monday waiting to see what Trump would say.
“It’s a decision that depends on the United States government, on the United States president,” Sheinbaum said ahead of Trump's statement. “So whatever his decision is, we will make our decisions and there is a plan, there is unity in Mexico.”
Both countries have tried to show action in response to Trump's concerns. Mexico sent 10,000 National Guard troops to their shared border to crack down on drug trafficking and illegal immigration. Canada named a fentanyl czar, even though smuggling of the drug from Canada into the United States appears to be relatively modest.
Chinese manufacturers reported an uptick in orders in February as importers rushed to beat higher U.S. tariffs imposed by President Donald Trump, as a Chinese state media report said that Beijing was considering ways to retaliate.
The Global Times, a newspaper of China's ruling Communist Party, said Monday that Beijing was studying both tariffs and non-tariff moves to counter Trump's higher tariffs. Asked about that report, Foreign Ministry spokesman Lin Jian said that “China will take all necessary measures to firmly safeguard own legitimate rights and interests.”
“U.S. agricultural and food products will most likely be listed,” it said, citing an unnamed source. Last week, Chinese Commerce Ministry officials had said the two sides were in a “dialogue” about trade.
