President Donald Trump is reportedly prepared to impose 25% tariffs on all goods from America’s closest neighbors, Canada and Mexico. On February 1, he issued stark warnings, citing inadequate border security as justification. These tariffs could plunge both Canada and Mexico’s economies, even sparking fears of broader impacts across the interconnected North American market.
Economists warn of dire consequences. Joe Brusuelas, chief economist at RSM, remarked, “This would be a real trade war, not a trade skirmish. This is serious. You would see job loss and people lose their homes.” Instantly, this potential trade war could disrupt delicate supply chains built over decades, adding pressure on American consumers who might face increased prices for goods including cars and gasoline.
Despite the alarming projections, confidence appears resilient on Wall Street. Many believe Trump may not follow through with these threats, especially considering Goldman Sachs suggested there’s just a 20% chance the tariffs will be enacted. “We note... he also stated... the tariff was never implemented,” noted Goldman Sachs economists, reflecting widespread skepticism based on Trump’s previous tariff threats, which resulted in no action.
Should the tariffs fall on oil imports, the potential for rising gas prices is another sticking point. With over 71% of U.S. oil imports coming from Canada and Mexico, analysts predict tariffs could add 20 to 50 cents per gallon at the pump, particularly impacting regions reliant on Canadian crude. Patrick De Haan of GasBuddy highlights how gas prices could escalate significantly if these tariffs come to fruition.
Trump has downplayed concerns over economic ties, asserting, “We don’t need them to make our cars... We have more than anybody.” This remark overlooks the interconnectedness of the North American auto industry, where parts are produced across borders before ending up assembled as vehicles. The Peterson Institute for International Economics warned imposing these tariffs could erase around $200 billion from U.S. GDP, lead to job losses, and hurt Canada’s economy by about $100 billion.
For Mexico, the repercussions could be more severe— economists have labeled these tariffs as “catastrophic.” “For Mexico, a 25% tariff would be catastrophic,” noted researchers at the Peterson Institute, highlighting the Mexican economy’s heavy dependency on exports to the U.S. Trump’s pursuit of these tariffs directly contradicts his administration's goals to reduce illegal immigration, possibly spurring more economic desperation south of the border.
The looming threat of retaliatory measures by Canada and Mexico has also begun to take shape. Justin Trudeau, the Canadian Prime Minister, stated, “Everything is on the table,” hinting at potential tariffs on American goods, which could escalate tensions between these neighboring nations.
Home country economics is at risk as well, as noted by Desmond Lachman of the American Enterprise Institute: “America is not an economic island, and serious economic problems abroad could come back to harm our financial system.” Economic advisors and policymakers are left wondering how best to navigate these proposed tariffs and the ensuing volatility they could inject across the markets.
With so much at stake, decisions surrounding tariffs are pressing, and many business leaders are calling for clarity. “For the sake of business certainty and visibility, particularly for small businesses, it’s time to figure out what you’re doing with tariffs as quickly as possible,” stated Peter Boockvar, the chief investment officer at The Bleakley Financial Group, addressing the urgent need for direction amid uncertain economic waters.
The vague yet impactful nature of tariffs may continue to cast clouds over international trade relations as the U.S. grapples with its continuously transformative economic policies. With negotiations on the U.S.-Mexico-Canada Agreement (USMCA) not due for official review until July 2026, American economic policies are set to be under scrutiny by all parties involved.
Trump’s commentary and proposed actions signal both opportunity and risk, not only for the U.S. but also for our northern and southern neighbors. Continuing developments may reshape not only domestic economics but could also redefine international trade frameworks.