The imposing of tariffs on top US trade partners (China, Canada, and Mexico) has sparked a tug-of-war on trade, with all countries retaliating with similar increases.
Tariff increases, even against top US trade partners, were a key feature of President Donald Trump’s 2024 election campaign. After he won and assumed the presidency, he made good on his word and announced his plan to impose 25% tariffs on goods from Canada and Mexico as early as February 1st. The next day, he announced a 10% tariff on goods from China.
According to the President, the tariffs will boost the economy, primarily the manufacturing industry, and protect jobs. The White House released a fact sheet citing the President’s decision to impose tariffs as an emergency response to “the extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl.”
Why has Trump pushed for tariff increases?
Imported goods have always been a key driver of the US economy. According to the US Census Bureau, imported goods totaled $3 trillion in 2024, and China, Canada, and Mexico accounted for 42% of that volume.
Historically, the US has always been on a trade deficit, importing more goods than it exports. However, the deficit has been steadily increasing since 2001, and in 2023, the US trade deficit in goods was the world’s largest at over $1 trillion.
Tariffs help close the deficit by increasing prices on imported goods to encourage Americans to purchase domestic or local alternatives. It can also incentivize manufacturers to move their operations to the US. However, this has not always been the case.
During Trump’s first term, he levied tariffs on China, the US’s long-time biggest supplier. This has not prompted manufacturers to move operations to the country, as they transferred them to Mexico, which resulted in Mexico leading in terms of imports to the US in 2023.
The executive order also outlined how the US has the lowest average tariff rates in the world. And yet, while trade accounts for 67% of Canada’s gross domestic product (GDP), 73% of Mexico’s GDP, and 37% of China’s GDP, it accounts for only 24% of US GDP.
What does the US import from Canada, Mexico, and China?
Among all categories of goods, the most imported in the US are machinery-related products, electronics, automotive, energy, and pharmaceutical products.
Canada, China, and Mexico account for a meaningful share of these imports, as listed in the imported goods in 2024 from the US Census Bureau below:
- Machinery products: Out of the $476.2 billion worth of imports, Mexico accounted for $96.3 billion, China $76.5 billion, and Canada $27.7 billion.
- Electronics: Out of $436.3 billion worth of imports, China accounted for $112.7 billion, Mexico $80.9 billion, and Canada $10.2 billion.
- Automotive products: Out of $354.4 billion worth of imports, Mexico accounted for $126.1 billion, Canada $46.6 billion, and China $15.5 billion.
- Energy products: Out of $222.2 billion worth of imports, Canada accounted for $114.3 billion, and Mexico $15.2 billion.
Canada exported 97% of its crude oil to the US in 2023. It also exports steel, lumber, grains, and potatoes. China is the key exporter of electrical equipment and electronics, such as chips, laptops, and smartphones.
Mexico, meanwhile, exports large amounts of produce such as fruit, vegetables, spirits, and beer. It is the second-largest supplier of agricultural products to the US and the world’s seventh-largest vehicle manufacturer, with 76% of its exports going to the US.
Which industries are most likely to be affected by the tariff increases?
Based on what the US imports the most from Canada, Mexico, and China, cars, electronics (such as computers), fuels, and produce (avocados and vegetables) are likely to see price increases.
Grocery prices are likely to increase as Mexico is the biggest source of fresh produce, supplying more than 60% of US vegetable imports and nearly half of all fruit and nut imports.
However, the BBC reports that car manufacturing will be significantly affected by the new tariffs, as vehicle parts move across the US, Mexican, and Canadian borders several times before a vehicle is completely assembled. A $3,000 increase in average car prices is possible, according to financial analysts.
It is worth noting that new tariffs on China imports are additional to all existing tariffs since 2018 (Trump imposed a 25% tariff on $50 billion Chinese export goods in 2018, which Biden continued during his term)—only this time, the 10% additional tariff is across the board.
In short, imported goods from China will no longer be exempt from taxes under the Section 321 de minimis entry process (shipments of less than $800). This will largely impact US dropshippers and fast fashion giants Shein and Temu.
How could tariffs impact the US economy?
Analysts say that the impact of a trade war is more manageable for the US as it is not a trade-sensitive economy. Its trade accounts for only 24% of its GDP.
- According to the Congressional Budget Office (CBO), a nonpartisan federal agency, Trump’s tariff policy could increase inflation by 1% by 2026. This can potentially cost American families an average of $1,560 per year.
- Washington, D.C.-based Tax Foundation estimates that the tariffs will reduce long-run GDP by 0.2%, the capital stock by 0.1%, and employment by 142,000 full-time equivalent jobs.
Historical data shows that the 2018 Trump-imposed tariffs on select Chinese imports, which the Biden administration carried, have ultimately raised prices and reduced output and employment, producing a net negative impact on the US economy.
Ultimately, US-based businesses and American consumers will be most impacted by paying higher taxes. Generally, tariffs are passed on to customers, as businesses are likely to increase the prices of imported goods to manage the taxes levied.
The tariff increase’s impact in Canada, Mexico, and China
Canada’s and Mexico’s economies are highly dependent on trade, which accounts for almost two-thirds of their economies’ GDP.
- For Mexico: A 25% tariff could decrease its GDP by 16%, according to Bloomberg Economics, with Mexico’s automotive industry bearing the brunt. More than 80% of Mexico’s exports—nearly 80% of the cars it produces and roughly 60% of its petroleum exports— go to the US.
- For Canada: The country will face the same burden, as more than 60% percent of its exports go to the US. However, its energy sector will take the biggest hit, as Canada sends 80% of its oil to the US.
Economists warn that the tariff increases could bring the two countries to the brink of a recession.
- For China: China has become less dependent on trade, as it only accounts for 37% of its GDP compared to more than 60% in the early 2000s. Ever since the first tariff increase set by Trump in 2018, China has increased domestic production in Beijing and ramped up trade with other countries like the EU, Mexico, and Vietnam. These will lessen the impact of an additional 10% tariff imposed by Trump.
What is the status of the imposed United States tariffs on imports?
As of this writing, it seems everything is at a standoff, with leaders in talks on how to cooperate and avoid the tariff increases. Meanwhile, Trump has mentioned in an interview that the EU might be next in his tariff increase plan.
Here is a brief timeline of events following Trump’s announcement:
- February 1st: Trump signed three executive orders that impose tariffs on China (10%), Canada (25%), and Mexico (25%) starting February 4th. By evening, Canada hit back with a 25% tariff on select goods, with Trudeau saying the US tariffs are plainly unjustified.
- February 3rd: Hours before the tariffs were scheduled to take effect, Trump announced a pause on tariffs on Mexico and Canada for 30 days.
- February 4th: China has hit back with 10% to 15% tariffs on American imports like oil, coal, and agricultural machinery. These tariffs take effect on February 10th.
- February 5th: The United States Postal Service suspends incoming parcels from China and Hong Kong, hugely impacting the shipments coming in from Chinese marketplaces like Shein and Temu. It then reversed its decision hours later.
