US President Donald Trump is implementing a 25% tariff wiped out on Mexico and Canada.
Tariffs from the US’s biggest trading partner came into effect at 00:00 east time (05:00 GMT), causing markets around the world to fall.
Washington also charges an additional 10% collection on Chinese imports, adding to the 10% that was charged last month.
Mexico and Canada are top trading partners in the US, accounting for more than 30% of the total goods traded. Trade in the three North American countries is worth more than $1.6 trillion.
The tariffs apply to imports from Mexico and Canada at approximately $91.8 billion.
How did you get here?
Tariffs in Mexico and Canada were one of the first things that came to mind after Trump’s reelection in November. He said he is sposing them to curb immigration and drug trafficking in Mexico and Canada and balance the trade deficit between the United States and its largest trading partner.
On February 3, Mexican President Claudia Sinbaum and Canadian Prime Minister Justin Trudeau agreed to boost border security in a last-minute transaction to prevent the flow of drug trafficking and immigration to the United States in order to postpone tariffs that came into effect on February 4th.
Last month, Trump announced a 25% tariff on aluminum and steel imports that will take effect on March 12, which will also affect Mexico and Canada.
What are tariffs and how do they work?
Tariffs are taxes on imports and services paid by businesses brought to the country by the government.
Tariffs designed to protect domestic industries often draw out consumer costs by making foreign products more expensive and potentially reducing demand.
When the first Trump administration introduced tariffs in 2018, the aim was to strengthen the US industry and punish foreign exporters. However, American businesses and consumers are not foreign exporters, and are burdened with the greatest burden from these tariffs.
A 25% US tariff on Mexican and Canadian exports could raise costs, cut trade, lead to unemployment, create economic uncertainty, cause retaliatory tariffs and widen the trade war.
What is the US-Mexico trade deficit?
The US is in a trade deficit between Canada and Mexico. That means you’re buying more products than you sell from those countries.
In a statement from the White House on February 1, Trump said tariffs are a strong source of leverage for the United States, claiming trade is 67% of Canada’s gross domestic product (GDP) and 73% of Mexico’s only 24% of U.S. GDP. The US goods trade deficit was the largest in the world at over $1 trillion.
Mexico is the largest trading partner in the United States. In 2024, the US imported $55.8 billion in goods from Mexico, exported $334 million, resulting in a trade deficit of $171.8 billion.
Due to years of increasing trade volume, the US has consistently faced a deficit with Mexico, and has grown over the past decade.
The trade deficit between the two countries increased by 12.7% from 2023 to 2024.
Canada is the second largest trading partner in the United States. In 2024, the US imported $412.7 billion in goods from Canada, exporting $349.4 billion, bringing the trade deficit to $63.3 billion.
While tariffs may aim to reduce trade deficits by reducing imports, the real impact of tariffs is more complicated with the possibility of consumer retaliation tariffs and price increases.
How do tariffs affect the US-Mexico-Canada Agreement (USMCA)?
During his first term in 2018, Trump announced the USMCA to replace the North American Free Trade Agreement (NAFTA), signed in 1992 between President George H.W. Bush.
In effect in 2020, the USMCA aims to modernize trade between the three countries by strengthening labor and environmental protection, increasing car manufacturing requirements, expanding digital trade rules and strengthening intellectual property protection.
The USMCA review is scheduled for 2026, but the potential threat to tariffs could lead to these negotiations sooner.
What Mexican products are affected by customs duties?
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. Mechanical and electrical equipment continues as major exports, including industrial machinery, computers and home appliances. Other major exports include petroleum products, agricultural products, medical devices, plastics and textiles.
According to the Observatory of Economic Complexity (OEC), Mexico’s major exports to the United States in 2023 were:
Vehicles and Auto Parts ($123 billion): Electrical and Electronics ($8.61 billion) including cars, trucks and automotive components: Computers, telecommunications equipment, home appliances, machinery and equipment and parts ($78.7 billion): Industrial machinery and mineral fuels and mineral oils ($78.7 billion). Optical, photography, technology, medical devices ($22.5 billion): Equipment and appliances used in medical, surgical, scientific, scientific applications, bedding, lighting ($13.3 billion): Includes home furniture, mattress, lighting equipment drinks, spirits, hanging out ($11.6BN): Tomatoes, avocados, various fruits and vegetables including BEAR, BILOR PEALS, and more
What Canadian Products are affected by customs duties?
Canada is the largest foreign supplier of US oil with energy products including crude and petroleum products, accounting for around 30% of all Canadian exports to the US. Cars, tractors and auto parts are the second largest exports, followed by machinery and mechanical appliances. Other important exports include medicines, plastics and wood products.
According to the OEC, Canada’s major exports to the US in 2023 were:
Energy Products ($13.1 billion): Includes crude and petroleum products automobiles, tractors, trucks, and car parts ($56.7 billion) and machinery and equipment ($32.2 billion): Plastic and plastic items for industrial machinery and equipment ($1.42 billion) ($1.42 billion) adopted wood and charcoal electric mackin. ($10.2 billion): precious metals and stones containing electrical appliances and components ($98.7 billion): gold, silver and diamonds