How Do Trump’s Tariffs Affect Mexico and Canada’s Exports? | Business and Economy News

United States President Donald Trump has implemented sweeping 25 percent tariffs on Mexico and Canada.

The tariffs on the US’s biggest trading partners took effect at 00:00 Eastern Time (05:00 GMT), causing markets across the globe to tumble.

Washington has also imposed an additional 10 percent levy on Chinese imports, adding to the 10 percent imposed last month.

Mexico and Canada are the top US trading partners, accounting for more than 30 percent of total goods traded. The value of trade among the three North American countries is more than $1.6 trillion.

These tariffs will apply to imports from Mexico and Canada totaling almost $918 billion.

How did we get here?

The tariffs on Mexico and Canada were among the first proposals floated after Trump’s re-election in November. He stated that he is imposing these tariffs to pressure Mexico and Canada to curb immigration and drug trafficking into the US, as well as to address the trade deficit between the US and its largest trading partners.

On February 3, Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau agreed to enhance border security to prevent drug trafficking and the flow of migrants into the US. These last-minute agreements postponed tariffs that were originally set to take effect on February 4.

Last month, Trump also announced 25 percent tariffs on aluminium and steel imports, which are scheduled to take effect on March 12 and will also impact Mexico and Canada.

What are tariffs and how do they work?

A tariff is a government-imposed tax on imported goods and services, paid by businesses that bring these goods into the country.

Designed to protect domestic industries, tariffs often increase costs for consumers by making foreign products more expensive, potentially reducing demand.

When the first Trump administration introduced tariffs in 2018, the goal was to strengthen US industries and penalize foreign exporters. However, American businesses and consumers bore the greatest burden from these tariffs rather than the foreign exporters.

The 25 percent US tariff on Mexican and Canadian exports could raise costs, reduce trade, lead to job losses, create economic uncertainty, and trigger retaliatory tariffs, escalating a trade war.

What is the US-Canada and US-Mexico trade deficit?

The US has a trade deficit with Canada and Mexico, meaning it buys more goods from these countries than it sells to them.

In a statement from the White House on February 1, Trump stated that tariffs are a powerful source of leverage for the US. He argued that while trade accounts for 67 percent of Canada’s gross domestic product (GDP) and 73 percent of Mexico’s, it accounts for only 24 percent of US GDP. The US trade deficit in goods is the world’s largest, exceeding $1 trillion.

Mexico is the largest US trading partner. In 2024, the US imported $505.8 billion in goods from Mexico and exported $334 billion, resulting in a trade deficit of $171.8 billion.

As trade volume has increased over the years, the US has consistently run a deficit with Mexico, which has expanded over the past decade.

The trade deficit between the two countries increased by 12.7 percent from 2023 to 2024.

Canada is the second largest US trading partner. In 2024, the US imported $412.7 billion in goods from Canada and exported $349.4 billion, resulting in a trade deficit of $63.3 billion.

While tariffs may aim to reduce trade deficits by decreasing imports, the actual impact is more complex, with potential for retaliatory tariffs and higher prices for consumers.

How will tariffs affect the United States-Mexico-Canada Agreement (USMCA)?

In 2018, during his first term, Trump announced the USMCA as a replacement for the North American Free Trade Agreement (NAFTA), which was signed in 1992 during President George HW Bush’s administration.

The USMCA, which took effect in 2020, aimed to modernize trade between the three countries by strengthening labor and environmental protections, increasing car manufacturing requirements, expanding digital trade rules, and enhancing intellectual property protections.

A review of the USMCA is scheduled for 2026, but the potential threat of tariffs could accelerate these negotiations.

What Mexican products will be affected by tariffs?

Mexico is one of the largest foreign suppliers of goods to the US, with cars, trucks, and auto parts making up the largest share of exports. Machinery and electrical equipment follow as key exports, including industrial machinery, computers, and household appliances. Other major exports include petroleum products, farm products, medical devices, plastics, and textiles.

According to the Observatory of Economic Complexity (OEC), Mexico’s main exports to the US in 2023 were:

• Vehicles and auto parts ($123 billion): including cars, trucks, and automotive components
• Electrical machinery and electronics ($86.1 billion): including computers, telecommunications equipment, and consumer electronics
• Machinery, mechanical appliances, and parts ($78.7 billion): including industrial machinery and equipment
• Mineral fuels and mineral oils ($25.2 billion): including petrol and refined petrol
• Optical, photographic, technical, and medical apparatuses ($22.5 billion): including instruments and appliances used in medical, surgical, and scientific applications
• Furniture, bedding, and lighting ($13.3 billion): including household and office furniture, mattresses, and lighting fixtures
• Beverages, spirits, and vinegars ($11.6 billion): including beer and hard liquor
• Fruit, nuts, and fruit peels ($9.38 billion): including tomatoes, avocados, and a variety of fruits and vegetables

What Canadian products will be affected by tariffs?

Canada is the largest foreign supplier of oil to the US, with energy products, including crude oil and petroleum products, accounting for about 30 percent of all Canadian exports to the US. Cars, tractors, and auto parts are the second-largest export, followed by machinery and mechanical appliances. Other significant exports include medicines, plastics, and wood products.

According to the OEC, Canada’s main exports to the US in 2023 were:

• Energy products ($131 billion): including crude oil and petroleum products
• Cars, tractors, trucks, and car parts ($56.7 billion)
• Machinery and mechanical appliances ($32.2 billion): covering industrial machinery and equipment
• Plastics and plastic articles ($14.2 billion)
• Wood and charcoal products ($11.5 billion): including plywood and saw wood
• Electrical machinery and equipment ($10.2 billion): including electrical appliances and components
• Precious metals and stones ($9.87 billion): including gold, silver, and diamonds