Analysis: Is There Genuine Risk Behind Trump's Tariff Proposals for Canada and Mexico?
What are Canada and Mexico's reactions? Additionally, how might Trump's tariff threats affect the United States-Mexico-Canada Agreement (USMCA) that was signed during his initial term?
TroibNews 
Last October, Donald Trump proclaimed, "The most beautiful word in the dictionary is tariff," emphasizing that it was his favorite word. On November 25, he promised that upon becoming president on January 20, he would sign an executive order to implement broad tariffs of 25 percent on all imports from Canada and Mexico, the U.S.'s largest trading partners, citing the urgency to tackle the persistent issues of illegal immigration and drug trafficking.
As his inauguration approached, Trump announced plans to establish a new entity dubbed the "External Revenue Service," which would focus on collecting "tariffs, duties and all revenue" from foreign nations right from his first day in office, underscoring his commitment to imposing tariffs.
What has been the response from Canada and Mexico? Additionally, how might Trump's tariff threats affect the United States-Mexico-Canada Agreement (USMCA), which was signed during his first term?
**Canada: Everything is on the table**
In response to Trump's threats of substantial tariffs, Canadian Prime Minister Justin Trudeau reportedly made an unexpected visit to Trump, leading to a dinner at Mar-a-Lago on November 29. During this meeting, Trump proposed the idea of making Canada the 51st state and humorously referred to Trudeau as "governor" of Canada.
"I look forward to seeing the governor again soon so we can continue our in-depth discussions on tariffs and trade," Trump remarked on his social media platform, Truth Social, recently.
While Trump continues to suggest a merger, Trudeau, now an outgoing prime minister, has firmly rejected this idea, asserting Canada's commitment to its sovereignty and the strong trade and security ties between the two nations. In a recent MSNBC interview, Trudeau stated that Trump's annexation remarks distract from the economic impacts a trade conflict would have on American workers and businesses. "And perhaps the idea of a 51st state is distracting a little bit from a very real question that will increase the cost of living for Americans and harm a trading relationship that works extremely well," he explained.
Trudeau highlighted that a 25 percent tariff could increase energy prices in the U.S., cautioning, "No American wants to pay 25 percent more for electricity or oil and gas coming in from Canada." Currently, Canada stands as the top trade partner for the U.S., with a 2023 U.S. Congressional Research Service report noting that 77 percent of Canadian exports go to the U.S., which also receives nearly half of its imports from Canada.
Canada is the principal supplier of energy imports to the U.S., with its share of U.S. crude oil imports rising from 33 percent in 2013 to 60 percent in 2023. When asked if Canada might halt energy exports in response to Trump's tariff threats, Foreign Affairs Minister Melanie Joly stated, "Everything is on the table." Trudeau has vowed that Canada would retaliate with its tariffs, similar to the actions taken during Trump's initial term, and Canadian officials are preparing to target an array of American products, such as steel, ceramics, and orange juice.
The Canadian Chamber's Business Data Lab projects that if Trump implements these tariffs, retaliatory measures from Canada could impact the U.S. economy significantly, potentially reducing GDP by $467 billion and averaging a $1,300 loss per American. Canadians have noted that these tariffs might hurt U.S. consumers more than Canadian producers, with one individual commenting, "this policy will not really harm Canadian producers and farmers, but rather it will probably harm the American people because they will be the guys who will pay the price of these tariffs."
Another expressed doubt regarding the tariffs' implementation, citing, "I think President-elect Trump is making his force known before he takes office… a lot of things were said, but not a lot of things follow through."
**Near-shoring shock for Mexico**
In a letter to Trump responding to his proposed tariffs, Mexican President Claudia Sheinbaum emphasized the importance of collaboration and understanding to tackle pressing issues like migration and the fentanyl crisis instead of resorting to threats. Trump had also indicated that to protect U.S. auto manufacturers, he might impose tariffs exceeding 200 percent on vehicles imported from Mexico, stating, "All I am saying is, 'I will put 200 or 500, I do not care.' I will set a number where they cannot sell one car," according to Mexico Business News.
Mexico has become the largest U.S. trading partner, a position it reached for the first time in 2023 with trade volumes exceeding $800 billion. The nation benefits from U.S. near-shoring efforts, which replace offshoring to address supply chain vulnerabilities. Data from the U.S. Department of Commerce indicates a year-on-year increase of 5 percent in U.S. imports from Mexico, summing up to $475 billion in 2023.
The primary exports from Mexico to the U.S. include computers, cars, and auto parts, while the U.S. primarily exports refined petroleum, auto parts, and petroleum gas to Mexico. Emmanuel Loo, acting head of the Ministry of Economy in Nuevo León, Mexico, remarked that Trump’s proposal for a 25 percent tariff seems unrealistic and pointed out that Nuevo León, a key industrial area, produces around half of the household appliances consumed in the U.S. He warned that such tariffs would significantly disrupt Mexico's manufacturing sectors and supply chains, ultimately leading American consumers to absorb the higher costs.
During Trump’s previous administration, he made similar threats regarding tariffs on all Mexican imports, though these were largely unacted upon, resulting in tensions in U.S.-Mexico relations and uncertainty regarding bilateral trade.
**Uncertainty surrounding the USMCA trade deal**
Trump’s ongoing tariff threats pose challenges to economic stability in the region and "a direct challenge" to the spirit of cooperation central to the USMCA, as warned by the Employers' Confederation of the Mexican Republic (Coparmex). Their concerns include the uncertainty in strategic sectors and the jeopardization of millions of jobs reliant on cross-border trade.
Mexico and Canada are the top two trading partners for the U.S. Under the USMCA framework, trade in goods reached approximately $1.6 trillion in 2023, as reported by the U.S. Census Bureau. After Trump took office in January 2017, he criticized the North American Free Trade Agreement (NAFTA) for contributing to the U.S. trade deficit and relocating manufacturing jobs to Mexico, leading to threats of imposing high tariffs on Canadian and Mexican steel and aluminum to push for renegotiation.
His efforts culminated in the signing of the USMCA in September 2018, which took effect on July 1, 2020, replacing NAFTA. Compared to NAFTA, the USMCA mandates that 75 percent of automobiles or essential components must be produced within the region, a rise from the previous 62.5 percent. Stricter rules of origin were also implemented, ensuring that only qualifying vehicles could enter the U.S. tariff-free, with the possibility of tariffs imposed according to WTO rules for non-qualifying products. Additionally, 40 to 45 percent of auto parts must be manufactured by workers earning at least $16 per hour, aimed at curbing job relocations to Mexico.
A review of the USMCA is slated for 2026, providing an opportunity for the U.S., Canada, and Mexico to decide on renewal or amendments to the agreement. Experts like William Reinsch, a former president of the National Foreign Trade Council, suggest that Trump may be using the threat of tariffs to negotiate an early review of the USMCA, asserting, "This strikes me more as a threat than anything else," and reflecting that "if you keep hitting them in the face, eventually they'll surrender."
Emily Johnson for TROIB News
As his inauguration approached, Trump announced plans to establish a new entity dubbed the "External Revenue Service," which would focus on collecting "tariffs, duties and all revenue" from foreign nations right from his first day in office, underscoring his commitment to imposing tariffs.
What has been the response from Canada and Mexico? Additionally, how might Trump's tariff threats affect the United States-Mexico-Canada Agreement (USMCA), which was signed during his first term?
**Canada: Everything is on the table**
In response to Trump's threats of substantial tariffs, Canadian Prime Minister Justin Trudeau reportedly made an unexpected visit to Trump, leading to a dinner at Mar-a-Lago on November 29. During this meeting, Trump proposed the idea of making Canada the 51st state and humorously referred to Trudeau as "governor" of Canada.
"I look forward to seeing the governor again soon so we can continue our in-depth discussions on tariffs and trade," Trump remarked on his social media platform, Truth Social, recently.
While Trump continues to suggest a merger, Trudeau, now an outgoing prime minister, has firmly rejected this idea, asserting Canada's commitment to its sovereignty and the strong trade and security ties between the two nations. In a recent MSNBC interview, Trudeau stated that Trump's annexation remarks distract from the economic impacts a trade conflict would have on American workers and businesses. "And perhaps the idea of a 51st state is distracting a little bit from a very real question that will increase the cost of living for Americans and harm a trading relationship that works extremely well," he explained.
Trudeau highlighted that a 25 percent tariff could increase energy prices in the U.S., cautioning, "No American wants to pay 25 percent more for electricity or oil and gas coming in from Canada." Currently, Canada stands as the top trade partner for the U.S., with a 2023 U.S. Congressional Research Service report noting that 77 percent of Canadian exports go to the U.S., which also receives nearly half of its imports from Canada.
Canada is the principal supplier of energy imports to the U.S., with its share of U.S. crude oil imports rising from 33 percent in 2013 to 60 percent in 2023. When asked if Canada might halt energy exports in response to Trump's tariff threats, Foreign Affairs Minister Melanie Joly stated, "Everything is on the table." Trudeau has vowed that Canada would retaliate with its tariffs, similar to the actions taken during Trump's initial term, and Canadian officials are preparing to target an array of American products, such as steel, ceramics, and orange juice.
The Canadian Chamber's Business Data Lab projects that if Trump implements these tariffs, retaliatory measures from Canada could impact the U.S. economy significantly, potentially reducing GDP by $467 billion and averaging a $1,300 loss per American. Canadians have noted that these tariffs might hurt U.S. consumers more than Canadian producers, with one individual commenting, "this policy will not really harm Canadian producers and farmers, but rather it will probably harm the American people because they will be the guys who will pay the price of these tariffs."
Another expressed doubt regarding the tariffs' implementation, citing, "I think President-elect Trump is making his force known before he takes office… a lot of things were said, but not a lot of things follow through."
**Near-shoring shock for Mexico**
In a letter to Trump responding to his proposed tariffs, Mexican President Claudia Sheinbaum emphasized the importance of collaboration and understanding to tackle pressing issues like migration and the fentanyl crisis instead of resorting to threats. Trump had also indicated that to protect U.S. auto manufacturers, he might impose tariffs exceeding 200 percent on vehicles imported from Mexico, stating, "All I am saying is, 'I will put 200 or 500, I do not care.' I will set a number where they cannot sell one car," according to Mexico Business News.
Mexico has become the largest U.S. trading partner, a position it reached for the first time in 2023 with trade volumes exceeding $800 billion. The nation benefits from U.S. near-shoring efforts, which replace offshoring to address supply chain vulnerabilities. Data from the U.S. Department of Commerce indicates a year-on-year increase of 5 percent in U.S. imports from Mexico, summing up to $475 billion in 2023.
The primary exports from Mexico to the U.S. include computers, cars, and auto parts, while the U.S. primarily exports refined petroleum, auto parts, and petroleum gas to Mexico. Emmanuel Loo, acting head of the Ministry of Economy in Nuevo León, Mexico, remarked that Trump’s proposal for a 25 percent tariff seems unrealistic and pointed out that Nuevo León, a key industrial area, produces around half of the household appliances consumed in the U.S. He warned that such tariffs would significantly disrupt Mexico's manufacturing sectors and supply chains, ultimately leading American consumers to absorb the higher costs.
During Trump’s previous administration, he made similar threats regarding tariffs on all Mexican imports, though these were largely unacted upon, resulting in tensions in U.S.-Mexico relations and uncertainty regarding bilateral trade.
**Uncertainty surrounding the USMCA trade deal**
Trump’s ongoing tariff threats pose challenges to economic stability in the region and "a direct challenge" to the spirit of cooperation central to the USMCA, as warned by the Employers' Confederation of the Mexican Republic (Coparmex). Their concerns include the uncertainty in strategic sectors and the jeopardization of millions of jobs reliant on cross-border trade.
Mexico and Canada are the top two trading partners for the U.S. Under the USMCA framework, trade in goods reached approximately $1.6 trillion in 2023, as reported by the U.S. Census Bureau. After Trump took office in January 2017, he criticized the North American Free Trade Agreement (NAFTA) for contributing to the U.S. trade deficit and relocating manufacturing jobs to Mexico, leading to threats of imposing high tariffs on Canadian and Mexican steel and aluminum to push for renegotiation.
His efforts culminated in the signing of the USMCA in September 2018, which took effect on July 1, 2020, replacing NAFTA. Compared to NAFTA, the USMCA mandates that 75 percent of automobiles or essential components must be produced within the region, a rise from the previous 62.5 percent. Stricter rules of origin were also implemented, ensuring that only qualifying vehicles could enter the U.S. tariff-free, with the possibility of tariffs imposed according to WTO rules for non-qualifying products. Additionally, 40 to 45 percent of auto parts must be manufactured by workers earning at least $16 per hour, aimed at curbing job relocations to Mexico.
A review of the USMCA is slated for 2026, providing an opportunity for the U.S., Canada, and Mexico to decide on renewal or amendments to the agreement. Experts like William Reinsch, a former president of the National Foreign Trade Council, suggest that Trump may be using the threat of tariffs to negotiate an early review of the USMCA, asserting, "This strikes me more as a threat than anything else," and reflecting that "if you keep hitting them in the face, eventually they'll surrender."
Emily Johnson for TROIB News
