Trump’s Tariffs Explained

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Overview of Tariff Actions and Recent Updates

Donald Trump, the newly elected president of the United States, has been threatening to impose 25% tariffs on imported goods from Canada and Mexico, however, he has recently postponed the order following negotiations with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum. In order to persuade Trump to delay the tariffs, Trudeau and Sheinbaum have mutually agreed to reinforce border security to impede the movement of drugs across borders and prevent illegal migration. However, Trump continued to place a 10% tariff on all goods from China starting on February 4th, 2025. Accounting for over 40% of US trade, and valued at over $2 trillion, Mexico, China, and Canada are all major contributors to trading within the United States. 

What is a tariff? 

A tariff is a tax that has been imposed by the government on imported goods. Tariffs are typically applied in order to increase the prices of foreign goods, and to encourage producers to manufacture domestically. They are often associated with protectionism as tariffs prioritize the domestic economy over international trade or partnerships. Tariffs can be imposed as a percentage of a good’s value (ad valorem tariffs), or as a fixed amount of money per unit (specific tariff).

Trump’s Motivation for Tariffs

The major reason why Trump imposed tariffs (though less outspoken) is to promote domestic production within the United States by increasing the prices of foreign goods, essentially as a protectionist policy. However, two more publicly stated reasons are to decrease the amount of illegal migration into the United States, and to reduce the amount of drugs moving across the border, specifically fentanyl (a highly potent and fatal synthetic opioid, with a lethal dose of just 2 milligrams). Tariffs are a mechanism for Trump to pressure Canada and Mexico into increasing the amount and strength of border security.

However, Trump may have imposed heavy tariffs in order to signify his power and present himself as a formidable force, declaring a national emergency in order to do so. Inu Manak, a fellow for trade policy at a Council on Foreign Relations, wrote: “With his decrees on trade, Trump is making an unconstitutional power grab by using the declaration of a national emergency to grant himself authority he does not have.” The” national emergency” was declared on January 20th, at the US-Mexico border, apparently “overrun by cartels, criminal gangs, known terrorists, human traffickers, smugglers, unvetted military-age males from foreign adversaries, and illicit narcotics that harm Americans, including America.” Trump later expanded the national emergency to Canada and China, which he stated were complacent in the movement of harmful drugs. However, Justin Trudeau later stated in a speech regarding the tariffs announcement that “less than 1% of fentanyl and less than 1% of illegal crossings into the United States come from Canada”.

Specific Tariff Measures 

Trump has threatened a 25% tariff on all imported goods from Canada and Mexico, however this measure has been temporarily suspended. A 10% tariff on Canadian crude oil exports was also discussed, which would cause extreme damage as 97% of Canada’s exports are to the United States. Furthermore, Mexico is a prominent supplier of automobile parts, fruits, and vegetables and will face similar impacts if tariffs are imposed. China will also face 10% tariffs on imports such as electronics (including laptops and smartphones), semiconductors, batteries, and solar panels. 

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Economic Impact of Tariffs and Inflation 

The threatened tariffs from Trump will have significant impacts on consumers and producers. For US citizens, there will be higher prices for goods such as cars, electronics, fuel, and food (particularly fruits and vegetables). There will also be increased manufacturing expenses due to higher tariffs on industrial imports such as machinery and auto parts. The increased cost of imports will translate to increased prices for  consumers, as US companies that rely significantly on foreign raw materials may attempt to pass costs onto consumers by raising prices, in turn increasing inflation. The US government may provide subsidies in order to help industries that will be particularly vulnerable to increased prices (such as the auto industry), which will decrease government revenue and generate an opportunity cost. An opportunity cost is the lost benefit from spending money on other alternatives. In this case, the United States government could be spending money on education or infrastructure; however, more of their spending money will go towards providing subsidies for impacted industries. 

Impact of Tariffs on Jobs and Manufacturing

There will be potential job losses in the US for industries that are highly dependent on imported materials, particularly the auto industries. The higher costs of production will force firms to reduce expenses, and a major reduction in spending will result from job cuts.

Global Impacts of Tariffs

Other than Canada, China, and Mexico, Trump has indicated the potential for additional tariffs that he may be imposing on the European Union (EU) and various other trading partners. There is a large amount of volatility regarding tariffs, and this inconsistency will heavily impact global supply chains. In retaliation to these extreme tariffs, Canada and Mexico will likely begin to decrease their reliance on US trade by increasing trade with Europe and Asia. Justin Trudeau, in particular, has already suggested that Canadians will begin to explore alternate export markets. 

Impacts on Canadians

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Trump’s tariffs will have numerous drastic and negative impacts on Canadians. Consumers will face increased prices on imported goods from the United States, including food, drinks, clothing, appliances, and vehicles. Furthermore, gas and energy prices will increase as a result of trade restrictions.

Canadian companies and small businesses that depend on American raw materials, such as steel, aluminum, and plastics, will face significantly increased production costs, reducing their ability to profit and damaging the Canadian economy as a whole. Furthermore, there will be increased disruptions within the supply chain, resulting in production delays. Small businesses will face difficulty in absorbing increasing costs, leading to lower profitability and forcing them to increase their prices to pass costs onto consumers and reduce their numbers of employees. 

Companies that export heavily to the US including the automotive, manufacturing, and agricultural industries will face reduced demand, leading to layoffs or forcing them to cut wages and downsize. 

Moreover, Justin Trudeau has similarly threatened retaliatory tariffs on US goods. Trudeau suggested 25% tariffs on US imports, increasing the prices of American beer, bourbon, fruit, clothing, appliances, and various other goods. These tariffs would be placed on around $155 billion worth of US goods.

Justin Trudeau addressed Canadians on Sunday, February 2nd, and encouraged them to “buy local,” helping small businesses and increasing reliance on domestic companies. He urged consumers to shift towards Canadian-made products instead of American imports. Specifically suggesting purchasing “Canadian rye instead of Kentucky bourbon”, or “avoiding Florida orange juice”. Trudeau further encouraged Canadians to vacation within the country rather than in the US. He emphasized the significance of supporting and purchasing from Canadian farmers, manufacturers, and entrepreneurs. 

Image Courtesy of South China Post

It is currently unclear whether Trump will continue with his threat to impose tariffs on Canada, however, it is certain that these tariffs will have a pronounced impact on the Canadian economy and consumers. It is vital to support Canadian brands and locally made products during this time.