What could become more expensive if Trump starts a new trade war with Mexico and Canada?

new York
CNN
—

During President-elect Donald Trump’s first term, America launched an all-out trade war with China to boost U.S. manufacturing, protect U.S. national security interests and resolve what Trump saw as a deeply imbalanced trade relationship.

President Joe Biden kept most of those tariffs in place and added some new ones. As the two nations’ leaders continue to clash, U.S. consumers have paid the price, spending more money on goods imported from China.

Now Trump is turning his attention to America’s largest and third-largest trading partners: Mexico and Canada. And he promises something extraordinary: On January 20, the day Trump is scheduled to be inaugurated, he promises to impose a new, blanket tariff of 25% on all goods that the US imports from its closest neighbors – goods Almost all of them cross the border for free due to the US-Mexico-Canada Agreement (USMCA) negotiated by Trump.

Enten explains how Americans view tariffs

Translation: Be prepared for a possible trade war that could put a significant dent in your wallet.

Here are some of the top consumer goods Americans buy from their neighbors to the north and south that could become more expensive if Trump implements his tariff plan:

Crude oil, which is refined to make gasoline and heating oil, is one of the most important imports from Canada to the United States. According to the US Energy Information Administration, oil prices hit a record 4.3 million barrels per day in July following the expansion of Canada’s Trans Mountain pipeline.

The expansion has helped deliver more oil for refining to much of the West Coast in addition to the Midwest, where it previously served primarily.

“You can’t just process a different oil overnight. It would require investment/years. More U.S. supplies wouldn’t help,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a post on X.

The 25% tariff imposed by Trump on Monday would have a “huge impact” on gas prices, amounting to an increase of between 25 cents and 75 cents per gallon, De Haan said. That would have the most immediate impact on Americans living around the Great Lakes, the Midwest and the Rocky Mountains.

Trump has proposed increasing the granting of American oil permits, but it would take time for that supply to become available and replace oil from Canada. And it’s unclear whether U.S. energy companies want to produce significantly more oil — global demand is slowing and it would be harder to make profits from increased drilling.

As climate change has made growing conditions less favorable in parts of the United States, the U.S. has become increasingly reliant on Mexico for production.

According to the Commerce Department, the U.S. imported $44.1 billion worth of agricultural products from Mexico in 2022, accounting for one-fifth of all U.S. agricultural products.

For example, 90% of the avocados Americans consumed in 2022 were imported. 89% of avocados imported into the US came from Mexico. In other words, your guacamole and avocado toast could skyrocket if Mexico imposes 25% tariffs.

According to the Commerce Department, the United States imported $44.76 billion worth of vehicles from Mexico in 2023, making it the largest importer.

As more automakers sought to avoid tariffs on Chinese goods, many shifted production to Mexico, turning the country into a global hub for auto factories, including General Motors, Ford, Stellantis and nearly a dozen others.

Shares of U.S. automakers plunged on Tuesday, with General Motors posting the biggest decline, falling 9%.

Virtually every American automaker relies on parts from Mexico to build its cars or trucks because these parts can be significantly cheaper than those made in the United States. But a 25% tariff would likely be a game-changer there.

And after cars themselves, auto parts were the second most imported item from Mexico last year.

Most of the alcohol the United States imports comes from Mexico.

For example, according to the U.S. Department of Agriculture, Mexico supplied more than 80% of total beer imports to the U.S. in the first three quarters of fiscal year 2024.

Additionally, tequila from Mexico and liqueurs from Canada were “major drivers of import growth” of distilled spirits, according to the USDA.

According to the Distilled Spirits Council, a trade group, the U.S. imported $4.6 billion worth of tequila and $108 million worth of mezcal from Mexico last year. That year, the U.S. also imported more than half a billion dollars worth of Canadian spirits.

“Ultimately, tariffs on spirits products from our neighbors to the north and south will hurt U.S. consumers and lead to job losses across the U.S. hospitality industry as these companies continue their long recovery from the pandemic,” said Distilled President and CEO Chris Swonger Spirits Council said in a statement Tuesday.

The new round of tariffs that Trump is poised to impose comes at a time when the U.S. is increasingly reliant on imports from Mexico and Canada.

Last year, Mexico overtook China as the largest exporter of goods to the U.S. for the first time in more than two decades, according to trade data from the Commerce Department. China is now the second largest exporter of goods to the USA, closely followed by Canada. That’s a big change from just two years ago, when China was the largest exporter of goods to the U.S. and Canada and Mexico barely came close.

That means the new tariffs promised by Trump will be virtually unavoidable for Americans, as companies facing higher costs are likely to pass them on to consumers.