Trump’s Proposed Tariffs Would Hurt Trade Partners Canada, Mexico, China—And US Consumers

Canada and Mexico’s leaders are striking a cautious tone after President-elect Donald Trump threatened to enact sizable tariffs on the U.S.’s major trade partners.

On Monday, Trump said he plans to impose 25% tariffs on all imports from Mexico and Canada and an additional 10% on goods from China.

While tariffs were anticipated, the announcement sparked pledges from the U.S.’s three top trading partners to continue with dialog before enacting the tariffs. Although, Trump said some tariffs could come as soon as Jan. 20, 2025—the administration’s first day in office.

Canadian Politicians Recognize ‘Challenges,’ Vow to Take Threats ‘Seriously’

Canadian Prime Minister Justin Trudeau said he spoke with Trump on the phone Monday about “the challenges that we can work on together,” according to a CTV News report. Trudeau also confirmed that he would convene a meeting with the country’s premiers to address the situation.

“A 25 per cent tariff would be devastating to workers and jobs in both Canada and the U.S.,” Doug Ford, premier of the Canadian province of Ontario, said in a post on X. “The federal government needs to take the situation at our border seriously.”

Meanwhile, economists think Canada is especially vulnerable. According to BMO senior economist Robert Kavcic, almost 75% of the country’s exports are bound for the U.S., making up 25% of that country’s Gross Domestic Product (GDP).

Mexico, China Argue That Trade War Puts Nations at Risk

Mexico President Claudia Sheinbaum also urged more dialogue on the issues but warned that her country could respond with tariffs of their own, according to a Reuters report. Sheinbaum pointed out that General Motors (GM) and Ford (F) both had plants in Mexico, risking those operations. 

“One tariff will follow another and so on, until we put our common businesses at risk,” said Sheinbaum at a press conference, adding that she planned to send a letter to Trump.

Chinese Embassy Spokesperson Liu Pengyu also responded to the tariff threat, arguing that China has been successfully working with the U.S. on drug trade issues.

“China believes that China-U.S. economic and trade cooperation is mutually beneficial in nature. No one will win a trade war or a tariff war,” the embassy spokesperson said in a statement sent to Investopedia.

Tariffs Could Stoke US Inflation, Hurt Consumers

Even as Trump discussed tariffs on the campaign trail, economists began expressing concerns about how this could lead to higher prices for U.S. consumers.

According to Deutsche Bank economists, imports from Canada and Mexico amount to about 4.7% of headline personal consumption expenditures (PCE), the Federal Reserve’s preferred inflation gauge.

“Should that extra 25pp tariff be passed along through all stages of production, that would be expected to increase the core PCE price level by 1.4%,” the economists wrote in recent commentary.

And they’re not the only ones who believe that.

According to Ernie Tedeschi, director of economics at the Yale Budget Lab, the tariffs on Mexico and Canada are likely to lead to a 0.6% gain in consumer prices. In 2023 dollars, that would amount to $980 per household. Add the proposed tariffs on China to that, and that figure would rise to $1,180 per household.