*This article was written in mid-March of 2025 and is not intended to reflect subsequent developments. Under the current United States Trump administration, the tariffs are evolving daily, and I recommend referring to other reliable sources for the most up to date information regarding international trade.
As of February 27, 2025, United States (“U.S.”) President Donald Trump’s administration continues to plan for the implementation of twenty-five percent tariffs on both Canada and Mexico, set to take effect on March 4, 2025.[1] With imports from Canada and Mexico valued at over $918 billion,[2] these tariffs are expected to have extensive, widespread effects on a broad range of industries.[3] The effects include concerns in all three countries, strain on the global supply chain, and increased economic uncertainty among consumers.[4] Given Canada and Mexico together supplied more than seventy-one percent combined of U.S. crude oil imports in 2023,[5] the scope of these tariffs’ impact will be vital to monitor. However, the uncertainty surrounding the true effect of these tariffs has already begun to increase economic instability and slow down trade.[6]
The automobile industry is especially bracing for a significant impact once the tariffs are implemented by pausing investments and considering price increases.[7] As of 2023, Mexico produced 3.5 million vehicles annually, with eighty-eight percent of those vehicles being exported.[8] Seventy-six percent of those manufactured went to the U.S.[9] Canada is also a large automotive market—the second largest in North America as of 2023.[10] However, during the COVID-19 pandemic, their imports decreased by almost twenty-five percent and only recently started reporting significant growth.[11] Still recovering from the supply chain shortages caused by the COVID-19 pandemic, including a semiconductor shortage and decelerated operations exasperated by social distancing requirements,[12] the automobile industries of the U.S., Canada, and Mexico are also heavily reliant on each other for parts and manufacturing.[13]
Automobile components will go across the border multiple times before becoming the final, complete product; with each crossing subject to the tariffs in place depending on their country of origin.[14] A Detroit Free Press article, highlighting concerns over the tariffs’ effects on Michigan’s automobile industry, cited an estimation by analyst Patrick Anderson that these tariffs to parts crossing the borders could add “as much as $9,000 more to the cost of the vehicle,” a price estimate based on projected job cuts and automobile component price hikes.[15]
Enacted in 2020 under the first Trump administration, the free trade U.S.-Mexico-Canada Agreement (“USMCA”) was designed to promote more purchases of and more investment in U.S.-produced auto parts while promoting more fair and balanced trade among the three countries.[16] However, when the twenty-five percent tariffs take effect on March 4, 2025, Mexico and Canada’s GDPs are projected to decline by around 1.5 percent each.[17] Given the high level of economic interdependence among the three countries, with multiple industries relying on cross-border supply chains, the decline of Mexico and Canada’s GDP is an indicator that the tariffs will negatively affect the U.S. economy as well.[18] If additional tariffs on steel and aluminum are also implemented, which are anticipated to cause 200,000-400,000 job losses, the likelihood of the U.S. economy struggling with rising inflation and unemployment due to these tariffs significantly increases.[19]
Many producers across the U.S., Canada, and Mexico have already paused transactions, because they are hesitant to quote prices while the implementation of the tariffs and their effects remain in limbo. With slowing operations, price increases, and job losses, the global supply chain will eventually be hit as well.[20] Compare the current proposed tariffs on Canada and Mexico to the Smoot-Hawley Tariff Act of 1930 (“the Act”). Although the Act was intended to support the U.S. economy, specifically farmers, and protect American industries and labor, it raised tariffs by about twenty to forty percent.[21] In response, other countries, including Canada and Mexico, imposed retaliatory tariffs, leading to a drastic decline in U.S. exports and global trade.[22] The Act severely damaged U.S. trade relationships and is credited for being a catalyst for the Great Depression.[23]
Now, with industries even more interconnected than in the past, it is crucial to closely monitor the implementation of tariffs on Canada and Mexico, as well as the steel and aluminum tariffs to be implemented across the board. The tariffs have already created skepticism from consumers, and the raising of prices, inflation, and unemployment projected to follow are likely to have broader implications for the global supply chain and international trade relationships. If Congress sought to prevent the tariffs from taking effect and restore some stability to the market, they could enact a joint resolution. Under 15 U.S.C. § 1622, Congress has the authority to terminate the emergency that President Trump may use to implement the tariffs by enacting such a joint resolution into law.[24]
The twenty-five percent tariffs imposed on Canada and Mexico do not appear to have promising economic effects for the domestic economy, the global supply chain, or global trade, and the uncertainty surrounding the tariffs is further compounded by concerns over inflation and unemployment. Given that many of the investigative market and trade research results are due by April 1, 2025,[25] economically it would make sense at a minimum to delay the tariffs until the full findings of the investigations have been analyzed.
Considering the high degree of interconnectedness in trade, and the value of our allyships with Canada and Mexico, it is more detrimental than beneficial to continue with these tariffs. The desire to produce items from large industries, such as oil or lumber, domestically is simply not feasible; the U.S. relies heavily on Canada and Mexico not only for crude oil imports, but also for lumber to build houses. While the U.S. has plenty of trees, they are not of the preferred quality that support home construction, whereas Canada has plenty of the preferred quality to spare.[26]
Since March 4, 2025, temporary exemptions have been granted on March 6, 2025, for Canadian and Mexican goods covered by the USMCA.[27] Retaliatory twenty-five percent tariffs from Canada on U.S. products went into effect on March 13, 2025; these tariffs are important to note because they will compound the economic effect of tariffs to Canadians importing goods from the U.S. and U.S. exporters who depend on the Canadian market.[28] The international effect of the tariffs that President Trump initiated are proving detrimental and shocking to small businesses in each country.[29] For instance, in regards to tequila; genuine tequila can legally only be made in Mexico.[30] With the tariffs, restaurants have already begun to stockpile the beverage due to concerns of increased prices, and purchases of it have decreased.[31]
The constantly changing stance on exemptions, new retaliatory tariffs, and the U.S. administration’s refusal to back down from the tariffs they are imposing are creating market uncertainty and causing more damage than aid on our domestic economy. Industries cannot rely on temporary exemptions nor the unpredictability or “erratic[ness]” of the tariffs and stacking of retaliatory tariffs when they are trying to conduct business.[32] The economic destruction of the tariffs on the domestic economy and global trade will continue to snowball unless the current administration decides to promote a global environment of stability by prioritizing our industries and international relationships.
[1] David Lawder, Trump says Canada, Mexico tariffs on schedule despite border, fentanyl efforts, Reuters, (Feb. 24, 2025, 4:28 PM), https://www.reuters.com/world/americas/canada-mexico-step-up-fentanyl-border-talks-this-week-avoid-trumps-tariffs-2025-02-24/.
[2] Id.; The Observatory of Economic Complexity, United States, https://oec.world/en/profile/country/usa.
[3] David Lawder, Trump says Canada, Mexico tariffs on schedule despite border, fentanyl efforts, Reuters, (Feb. 24, 2025, 4:28 PM), https://www.reuters.com/world/americas/canada-mexico-step-up-fentanyl-border-talks-this-week-avoid-trumps-tariffs-2025-02-24/.
[4] Indrabati Lahiri, Global car stocks weaken as Trump renews threat of tariffs against the EU, Euronews, (Feb. 27, 2025, 10:51 AM), https://www.euronews.com/business/2025/02/27/global-car-stocks-weaken-as-trump-renews-threat-of-tariffs-against-the-eu.
[5] Cong. Rsch. Serv., U.S. Petroleum Trade: Crude Oil Imports from Canada and Mexico and Potential Tariffs (2025), https://crsreports.congress.gov/product/pdf/IN/IN12488/2.
[6] Economic Forecast Shows Trump’s Tariffs Are Creating Uncertainty And Hurting Economy, (March 17, 2025), https://www.colorado.gov/governor/news/economic-forecast-shows-trumps-tariffs-are-creating-uncertainty-and-hurting-economy.
[7] Ari Hawkins, Auto industry braces for Trump tariff onslaught, Politico, (Feb. 18, 2025), https://www.politico.com/newsletters/weekly-trade/2025/02/18/auto-industry-braces-for-trump-tariff-onslaught-00204616.
[8] Mexico – Automotive Industry, (Nov. 4, 2023), International Trade Administration, https://www.trade.gov/country-commercial-guides/mexico-automotive-industry.
[9] Id.
[10] Canada – Automotive, (Nov. 3, 2023), International Trade Administration, https://www.trade.gov/country-commercial-guides/canada-automotive.
[11] Id.
[12] Joann Muller, The auto industry changed forever after COVID, Axios, (March 10, 2025), https://www.axios.com/2025/03/10/covid-auto-industry.
[13] Noi Mahoney, Tariffs could reshape North American supply chains for autos, lumber, agrifoods, FreightWaves, (Dec. 20, 2024), https://www.freightwaves.com/news/tariffs-could-reshape-north-american-supply-chains-for-autos-lumber-agrifoods.
[14] Id.
[15] Todd Spangler, Trump threatens tariffs on Canada and Mexico next week, which could devastate Michigan, Detroit Free Press (Feb. 27, 2025), https://www.freep.com/story/news/politics/2025/02/27/michigan-impact-trump-canada-mexico-tariffs/80692236007/.
[16] USTR, The United States-Mexico-Canada Agreement Fact Sheet, https://ustr.gov/sites/default/files/files/Press/fs/USMCA/USMCA-Autos_and_Auto_Parts.pdf.
[17] Marina Valenti & Mary Park Durham, Why would tariffs impact Mexico and Canada?, JP Morgan Asset Management, (Jan. 24, 2025), https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/on-the-minds-of-investors/how-would-tariffs-impact-mexico-and-canada/.
[18] David Furceri, IMF Working Paper: Macroeconomic Consequences of Tariffs, International Monetary Fund, (Jan. 2019), https://www.imf.org/-/media/Files/Publications/WP/2019/wp1909.ashx.
[19] World Trade Center Denver, WTC Denver Trade Briefing Series – Part 2: The Current State of US Trade Policy, YouTube (Feb. 19, 2025), https://www.youtube.com/watch?v=YS_42BVWuWw.
[20] McGregor McCance, Supply Chains Explained: How They Work and Why Tariffs Can Strain Them, University of Virginia Daden School of Business, (March 11, 2025), https://news.darden.virginia.edu/2025/03/11/supply-chains-explained-how-they-work-and-why-tariffs-can-strainthem/#:~:text=Tariffs%20disrupt%20global%20supply%20chains,to%20higher%20prices%20for%20consumers.
[21] Douglas A. Irwin, The Smoot-Hawley Tariff: A Quantitative Assessment, Nat’l Bureau of Econ. Rsch. (March, 1996), https://www.nber.org/system/files/working_papers/w5509/w5509.pdf; CFI Team, Smoot-Hawley Tariff Act: The Tariff Act of 1930 that raised import duties to protect U.S. businesses and farmers, Corp. Fin. Inst., https://corporatefinanceinstitute.com/resources/economics/smoot-hawley-tariff-act/#:~:text=Global%20trade%20declined%20at%20a,Amending%20Trade%20Policies.
[22] CFI Team, Smoot-Hawley Tariff Act: The Tariff Act of 1930 that raised import duties to protect U.S. businesses and farmers, Corp. Fin. Inst., https://corporatefinanceinstitute.com/resources/economics/smoot-hawley-tariff-act/#:~:text=Global%20trade%20declined%20at%20a,Amending%20Trade%20Policies.
[23] U.S. Senate, The Senate Passes the Smoot-Hawley Tariff, https://www.senate.gov/artandhistory/history/minute/Senate_Passes_Smoot_Hawley_Tariff.htm.
[24] 15 U.S.C. § 1622
[25] Brownstein Client Alert, President Trump Issues America First Trade Policy Memorandum – Analysis and Section Summary, (Jan. 21, 2025), https://www.bhfs.com/insights/alerts-articles/2025/president-trump-issues-america-first-trade-policy-memorandum-analysis-and-section-summary.
[26] Brent Sohngen, Housing Prices and Tariffs on Canadian Softwood Lumber, The Ohio State University, (Feb. 3, 2025), https://u.osu.edu/aede/2025/02/03/housing-prices-and-tariffs-on-canadian-softwood-lumber/#:~:text=What%20may%20come%20as%20a,remove%20for%20timber%20every%20year.
[27] Erica York & Alex Durante, Trump Tariffs: Tracking the Economic Impact of the Trump Trade War, Tax Foundation, (March 7, 2025), https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/.
[28] Sophia Harris, Canada’s counter-tariffs are hurting small businesses. Even so, many still support them, CBC News, (March 16, 2025, 2:00 AM MDT), https://www.cbc.ca/news/business/tariffs-small-business-1.7484510.
[29] Id.
[30] Why Tequila Can’t Be Made Outside of Mexico, Curamia, (Dec. 19, 2023), https://curamiatequila.com/blogs/blog/can-tequila-only-be-made-in-mexico?srsltid=AfmBOopfTSPFf9GsNpHrg4zxslp5B1pzWb6K0LE8z9yQZSoxibF6FFw6.
[31] Id.
[32] Stephanie Brinley, Tariffs on Auto Industry: Extended Disruption Now More Likely, S&P Global, (March 12, 2025), https://www.spglobal.com/automotive-insights/en/rapid-impact-analysis/tariffs-on-auto-industry-extended-disruption-likely.
