President Donald Trump is poised to unleash his first wave of tariffs Saturday, sending foreign governments and businesses rushing to skirt potential duties and prepare for retaliation.
The targets are unlikely ones: Canada and Mexico, the two biggest buyers of US goods. Trump has pledged 25% tariffs on about $900 billion in goods from both nations, whose trade surpluses with the US have long chafed the president. Trump on Thursday vowed to follow through by his self-imposed Feb. 1 deadline, though the mercurial president has been known to change his mind.
The scope of the duties also remained unclear. Trump declined to say if they would apply to Canadian oil imports, for example.
Whatever Trump decides sets the stage for a separate review aimed at China, as well as Canada and Mexico, that could tee up even more tariffs as soon as April. The president on Thursday indicated he would move forward with 10% import duties on China, but did not specify timing.
While it’s possible the tariffs are short-lived, depending on how Canada and Mexico respond, the tone for trade policy is clear, said David Seif, chief economist for developed markets at Nomura. “We expect Trump to implement more tariffs this year and for the average tariff rate on goods imported into the US to rise significantly in 2025,” he said.
Economists warn a trade war would spike costs for American manufacturers reliant on imported materials and surge prices for consumers. Mexico’s economy shrank in the fourth quarter as risks mount.
It’s becoming the first major test of whether Trump can use US economic might to reshape supply chains, shrink trade deficits and get even with those he perceives are ripping off the US.
Some foreign officials see the president’s threats as a leverage play rather than an ironclad commitment to raise import taxes. A clash with Colombia over deportation flights, where Trump ultimately backed off imposing tariffs, showed haggling on his pet issues can stave off new duties.
Early Fallout
Trump thus far has appeared more resolute about slapping tariffs on US imports than during his first term, when his allies succeeded in whittling down his aspirations.
Trump has said deficits subsidize foreign countries, batted down more modest proposals and argued import-tax revenue can help fill a budget hole. He’s extolled the virtues of former President William McKinley, a tariff champion, even reverting the name of an Alaskan mountain to honor him.
Some companies are seeking to stockpile goods in the US ahead of any levies, said Rodrigo Villegas, CEO of Mexico-based political risk consultancy Suass Group. Others are less equipped to do so, like agricultural exporters that ship perishable foods.
Affected business owners hope US demand for their goods provide leverage to blunt Trump tariff plans over the long term. Mexico is a major fruit exporter, Canada is the top source of crude oil for the US and both nations are integral to the auto sector.
Despite the US being the world’s largest oil producer, Midwestern refiners rely on Canada for as much as three-quarters of the crude they process. Refining company Valero Energy Corp. said the sector will cut gasoline production if new tariffs affect Canadian crude. Ohio business groups made a last-minute appeal to their former home-state senator — now Vice President JD Vance — to intervene to stop the tariffs.
Across-the-board tariffs on Canada and Mexico would fly in the face of the trilateral trade deal Trump signed in his first term.
Many businesses with operations in Mexico decided not to make sudden moves until a final decision is announced. “They’re in a situation where they say, ‘if this is really going to happen, then I will go through the pain. If not, I’ll wait,’” said Jorge Gonzalez Henrichsen, co-CEO of The Nearshore Company, which helps US firms that manufacture goods in Mexico.
China, Sectoral Tariffs
Trump has floated 10% tariffs on China, saying Beijing failed to honor promises to prevent fentanyl from flowing into the US. The president, however, has recently backed away from soaring campaign pledges to batter the country with new duties.
Trump’s advisers have been divided over the extent of his tariff agenda. Treasury Secretary Scott Bessent is said to favor a more gradual approach, which Trump has dismissed, while Commerce Secretary Howard Lutnick, has championed them.
The Peterson Institute for International Economics found a tariff of 25% against Mexico and Canada would shave around $200 billion off real US gross domestic product by the end of the Trump administration. An extra 10% tariff on goods from China would lower real GDP by $55 billion over the next four years.
Trump has also said he will impose tariffs on pharmaceuticals, semiconductor chips, steel, aluminum and copper and has mused about across-the-board duties, but has not elaborated on his plans.
Placating Trump
Trump’s proposed 25% levy on Canada and Mexico is tied to action on the border and his team has wavered on whether the countries have done enough.
White House Press Secretary Karoline Leavitt once cited Canadian Prime Minister Justin Trudeau’s actions as positive, which include using Black Hawk helicopters to monitor parts of the 5,500-mile border and upping fentanyl seizures. Trump has been pleased Mexico is accepting deportation flights and deploying the national guard, according to a person familiar with his thinking.
Yet Trump’s top economic adviser, Kevin Hassett, said this week on Fox Business the president remains “very serious” about stemming the flow of fentanyl into the US.
Mexican President Claudia Sheinbaum on Wednesday cast doubt that Trump would go ahead with the tariffs, but added if he does, “we have our plan.”
Canada plans to quickly counter-tariff high-profile items such as coffee from Louisiana and bourbon from Kentucky, similar to how it responded in 2018 when Trump taxed steel and aluminum imports.
Trudeau’s officials have drafted a roughly $105 billion list of US products to target if a trade war escalates, including steel and aluminum, according to people familiar with the government’s plans.
Trudeau has examined even more drastic options, including export taxes on strategic commodities, including oil and uranium.
Integrated Economies
The auto industry is a prime example of the pain points associated with North American economic integration: US-based companies use parts, facilities and workers in all three nations.
The arrangement has long irked Trump, who has said it hurts Detroit automakers. Trump has complained about the possibility of Chinese carmakers building plants in Mexico. The effect of auto tariffs would be felt quickly, industry executives say.
“Customers will be forced to pay higher prices for an extended time frame, and that’s just not viable,” said Linda Hasenfratz, executive chair of auto-parts manufacturer Linamar Corp.
Francisco González, executive president of the National Auto Parts Industry Association, said replacing many components with US materials is difficult, either because of sheer volume – one vehicle model’s steering wheel can have 30 different parts – or scarcity. González is skeptical tariffs would create US auto jobs as Trump has promised.
“The United States doesn’t have the labor pool necessary to carry out these activities,” he said.
--With assistance from Joe Deaux, Mackenzie Hawkins, Brooke Sutherland, Alex Vasquez, Brian Platt, Jacob Lorinc, Nancy Cook, Eric Martin, Amy Stillman and Derek Decloet.
