Canada Mexico Tariffs and Global Trade Turmoil

The Canada-Mexico tariffs have been a major point of contention in global trade. Tariffs on Canadian steel and aluminum were imposed by the US in May 2018, sparking a retaliatory response from Canada.

Canada responded with tariffs on US goods, including steel, aluminum, and other products. The tariffs were intended to target key US industries, such as the auto sector.

The US tariffs on Canadian steel and aluminum were imposed under Section 232 of the Trade Expansion Act, which allows the president to impose tariffs on national security grounds. This move was seen as a significant escalation of trade tensions between the two countries.

The tariffs have had a significant impact on Canadian businesses, particularly those in the auto and steel sectors.

The USMCA trade deal, which replaced NAFTA in 2020, maintains zero-tariff treatment for most agricultural products, textiles, apparel, and other goods that meet the trade agreement's rules of origin.

The deal also maintains a 10% tariff on non-compliant energy and potash from Canada and Mexico.

The Trump administration's decision to leave Canada and Mexico off the tariffs list on Wednesday might be a symbol that the president recognized the neighboring nations' significance to the US economy.

However, this decision was probably a negotiation tactic, giving Trump wiggle room to adjust tariffs in the future.

If Trump's prior order were terminated, all non-USMCA-compliant goods would be reduced to a 12% tariff, according to a White House spokesperson.

The tariffs on Mexico have an outsize effect on the border states, which rely on the local economy built around international trade.

There was about $945 billion in trade between Mexico and the US in 2024, with most of the products exchanged flowing through Texas.

Really, our economies are interlinked, said Chris Tang, a UCLA professor who's an expert in global supply chain management, so hopefully, the US, Canada, and Mexico can work together to resolve trade tensions.

The trade impact of tariffs between Canada and Mexico has been significant.

Canada's trade deficit with Mexico increased by 12% in 2018, with a total value of $4.4 billion.

Mexico's exports to Canada fell by 7.5% in 2019, with a total value of $23.6 billion.

The auto industry is expected to be heavily impacted by the new tariffs, as manufacturers rely on cross-border supply chains between the U.S., Canada, and Mexico. Car prices are likely to rise due to these tariffs.

The U.S. gets a significant portion of its vehicles and auto parts from these countries. Specifically, Mexico supplies $79 billion in vehicles and $81 billion in auto parts, while Canada supplies $31 billion in vehicles and $19 billion in auto parts.

These numbers are substantial, and the tariffs will likely disrupt production. Analysts at S&P Global Mobility estimate that the tariffs could increase the price of a new car by $3,000.

Here's a breakdown of the auto industry's reliance on these countries:

China, another key player in the auto supply chain, exported $18 billion in auto parts to the U.S. last year. With tariffs on Chinese goods now doubled, further cost increases are expected.

The OECD has predicted that trade turmoil will slash growth in Canada and Mexico, with the US also expected to be hit. This is due to the escalating trade tariffs imposed by US President Donald Trump.

Canada's economy is predicted to grow by just 0.7% this year and in 2026, compared to the previous forecast of 2% for both years. This is a significant downgrade.

Mexico is now forecast to contract by 1.3% this year and shrink a further 0.6% next year, instead of growing by 1.2% and 1.6% as previously expected.

The OECD has also downgraded growth in the US, with growth of 2.2% expected this year and 1.6% in 2026, down from previous forecasts of 2.4% and 2.1%.

Here are the predicted growth rates for Canada, Mexico, and the US:

The OECD warns that the developing trade war is set to push up inflation, which will mean interest rates are likely to remain higher for longer.

Canada and Mexico have vowed to retaliate against the tariffs imposed by the US. Canadian Prime Minister Justin Trudeau said his country would slap tariffs on over $100 billion of American goods, while President Claudia Sheinbaum of Mexico has instructed her economy minister to implement a plan B, which includes tariff and non-tariff measures in defense of Mexico's interests.

Mexico has already stationed 10,000 National Guard troops at the border to crack down on smuggling and illegal immigration. The US has imposed tariffs on Mexican imports, starting on Tuesday, with a 25% tariff on most goods.

China has also vowed to take countermeasures against the US tariffs. Beijing has placed 10 US firms on its unreliable entity list, which would bar them from engaging in China-related import or export activities and from making new investments in the country.

A fresh viewpoint: Why Does Trump Want to Tariff Canada

The president's executive orders have triggered a chain reaction of potential retaliation and further tariff increases. Tariffs will remain in effect indefinitely until the president decides to remove them.

Canadian Prime Minister Justin Trudeau has signaled his country's intention to retaliate, with plans to slap tariffs on over $100 billion of American goods over the course of 21 days. Mexico's President Claudia Sheinbaum has also hinted at taking countermeasures, although specific details have not been announced.

The United States has already imposed additional duties on products from Canada and Mexico, with implementing guidance published by CBP. Canada and Mexico have responded by stationing troops at the border to crack down on smuggling and illegal immigration.

Beijing has placed 10 more US firms on its unreliable entity list, effectively barring them from engaging in China-related import or export activities. This move is a clear sign of China's intention to retaliate against the US tariffs.

Tariff increases by the US and target countries are possible over the next few weeks, with the president reserving the right to raise tariffs further if Canada, Mexico, and China retaliate.

China said it would challenge Trump's move at the World Trade Organization and take other "countermeasures."

The exact products that will be targeted by China's countermeasures are not specified, but it's clear that China is not backing down.

China's reaction to Trump's tariffs is a clear indication that the trade war is escalating rapidly.

China's countermeasures will likely have significant economic implications for both countries.

Imports from Canada and Mexico that qualify for de minimis entry are temporarily exempt from the new tariffs. This means you can still take advantage of this process for now.

The original tariff orders had suspended access to the Section 321 customs de minimis entry process, which would have made it more costly for imports to go through. This change would have added extra hassle to an already complex process.

On February 7, the White House acknowledged the challenges of suddenly ending de minimis entry, and issued an amendment to the original China tariff order that suspended the de minimis prohibition. This was a smart move, as it would have caused significant disruption to businesses.

President Trump issued amendments to the Canada and Mexico tariff orders on March 2, to suspend those orders' de minimis entry bans. This means imports from these countries can continue to use de minimis entry for now.

The Department of Commerce has not commented on when it may authorize the imposition of the de minimis entry suspension. This lack of clarity is likely causing uncertainty for businesses that rely on this process.