Trump tariffs on Mexico, Canada and China will start Saturday, WH says

President Donald Trump will move forward with plans to implement tariffs on imports from Canada, Mexico and China starting Saturday, potentially driving up the price of everything from gasoline and automobiles to guacamole ahead of the Super Bowl. 

White House Press Secretary Karoline Leavitt confirmed the news at a briefing Friday. She said Trump will impose a 25% tariff on Canadian and Mexican imports starting Feb. 1, and a 10% tariff on Chinese imports starting the same day. 

"At this point, the president has made it very clear those tariffs are going to be implemented. And in effect, if the president at any time decides to roll back those tariffs, I'll leave it to him to make that decision. But starting tomorrow, those tariffs will be in place," Leavitt said. 

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The tariffs carry both political and economic risks for Trump, who is just two weeks into his second term. Many voters backed the Republican on the promise that he could tamp down inflation, but the possibility of tariffs could trigger higher prices and potentially disrupt the energy, auto, lumber and agricultural sectors. Shortly after Leavitt spoke, the S&P 500 stock index sold off and largely erased its gains on the day.

What are tariffs? 

The backstory:

Tariffs are a tax on imports. Tariffs are typically charged as a percentage of the price a buyer pays a foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country. Trump has been threatening tariffs to ensure greater cooperation from countries on stopping illegal immigration and the smuggling of chemicals used for fentanyl. Trump has also pledged to use tariffs to boost domestic manufacturing.

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U.S. tariff rates vary: They are generally 2.5% on passenger cars, for instance, and 6% on golf shoes. Tariffs can be lower for countries with which the United States has trade agreements. For example, most goods were able to move among the United States, Mexico and Canada tariff-free because of Trump’s US-Mexico-Canada trade agreement. That will change under new tariffs imposed by Trump. 

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Trump’s tariffs are an about-face to the trade agreement he himself negotiated with Canada and Mexico in his first term. The USMCA agreement  – which he called "the fairest, most balanced, and beneficial trade agreement we have ever signed into law,’’ – was supposed to bring predictability to North American trade, giving businesses the confidence to make investments. It hasn’t worked out that way.

Now, experts say the 25% tax is like launching "a grenade" into the U.S. auto, oil and other major industries. 

"You have engines and car seats and other things that cross the border multiple times before going into a finished vehicle,’’ said Scott Lincicome, vice president of general economics and trade policy at the libertarian think tank the Cato Institute. "You have American parts going to Mexico to be put into vehicles that are then shipped back to the United States.

"You throw 25% tariffs into all that, and it’s just a grenade."

What items from Canada and Mexico will have tariffs? 

What we know:

Major imports from Canada and Mexico include cars and trucks, automobile parts, crude oil, and agricultural products. 

What we don't know:

It's still unclear if there will be exemptions for some products that could result in swift price increases to U.S. consumers. Trump had said he was weighing issuing an exemption for Canadian and Mexican oil imports. He said Friday that he was considering a lower tariff rate on oil, but it was unknown if that lower rate would be in place when he signs the order on Saturday.

″I’m probably going to reduce the tariff a little bit on that," Trump said of oil. "We think we’re going to bring it down to 10%."

It's also unclear if Trump will follow through with threats to impose tariffs on the European Union. He said Friday that he "absolutely" would add tariffs to EU imports, but he didn't elaborate. 

By the numbers:

Under 25% tariffs, tariffs would surge from $1.3 billion to $132 billion a year on Mexico’s imports to the United States and from $440 million to $107 billion on Canada’s, according to the tax and consulting firm PwC.

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In 2023, the U.S. bought more than $45 billion in agricultural products from Mexico –including 63% of imported vegetables and 47% of fruits and nuts. Farm imports from Canada came to $40 billion. A 25% tariff could push prices up.

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In 2023, the United States imported $69 billion worth of cars and light trucks from Mexico – more than any other country -- and $37 billion from Canada. Another $78 billion in auto parts came from Mexico and $20 billion from Canada. The engines in Ford F-series pickups and the iconic Mustang sports coupe, for instance, come from Canada.

S&P Global Mobility reckoned that auto "importers are likely to pass most, if not all, of this (cost) increase to consumers.’’ TD Economics notes that average U.S. car prices could rise by around $3,000 – this at a time when the average new car already goes for $50,000 and the average used car for $26,000, according to Kelley Blue Book.

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Canada is also by far America’s biggest foreign supplier of crude oil. From January through November last year, Canada shipped the U.S. $90 billion worth of crude, well ahead of No. 2 Mexico at $11 billion.

How are Canada, Mexico and China reacting to the tariffs?

What they're saying:

Canadian Prime Minister Justin Trudeau said Friday that Canada is ready is a respond if Trump goes ahead with the tariffs, but he did not give details.

"We’re ready with a response, a purposeful, forceful but reasonable, immediate response," he said. "It’s not what we want, but if he moves forward, we will also act."

Trudeau said tariffs would have "disastrous consequences" for the U.S, putting American jobs at risk and causing prices to rise. Trudeau reiterated that less than 1% of the fentanyl and illegal crossings into the U.S. come from Canada.

Mexican President Claudia Sheinbaum said Friday that Mexico has maintained a dialogue with Trump’s team since before he returned to the White House, but she emphasized that Mexico has a "Plan A, Plan B, Plan C for what the United States government decides."

"Now it is very important that the Mexican people know that we are always going to defend the dignity of our people, we are always going to defend the respect of our sovereignty and a dialogue between equals, as we have always said, without subordination," Sheinbaum said.

Liu Pengyu, spokesman for the Chinese embassy in Washington, said the two countries should resolve their differences through dialogue and consultation. "There is no winner in a trade war or tariff war, which serves the interests of neither side nor the world," Liu said in a statement. "Despite the differences, our two countries share huge common interests and space for cooperation.''

Why are tariffs controversial? 

Trump has said tariffs will create more factory jobs, shrink the federal deficit, lower food prices and allow the government to subsidize childcare.

Tariffs can also be used to pressure other countries on issues that may or may not be related to trade. In 2019, for example, Trump used the threat of tariffs as leverage to persuade Mexico to crack down on waves of Central American migrants crossing Mexican territory on their way to the United States.

Trump even sees tariffs as a way to prevent wars.

"Tariffs are the greatest thing ever invented,’’ Trump said at a rally in Flint, Michigan, during his presidential campaign.

In his first term, Trump imposed tariffs with a flourish — targeting imported solar panels, steel, aluminum and pretty much everything from China.

"Tariff Man," he called himself.

The other side:

Tariffs raise costs for companies and consumers that rely on imports. Mainstream economists are generally skeptical of tariffs, considering them a mostly inefficient way for governments to raise money and promote prosperity. They’re also likely to provoke retaliation. 

The European Union, for example, punched back against Trump’s tariffs on steel and aluminum by taxing U.S. products, from bourbon to Harley-Davidson motorcycles. Likewise, China responded to Trump’s trade war by slapping tariffs on American goods, including soybeans and pork in a calculated drive to hurt his supporters in farm country.

A study by economists at the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank concluded that Trump’s tariffs failed to restore jobs to the American heartland. The tariffs "neither raised nor lowered U.S. employment’’ where they were supposed to protect jobs, the study found.

Despite Trump’s 2018 taxes on imported steel, for example, the number of jobs at U.S. steel plants barely budged: They remained right around 140,000. By comparison, Walmart alone employs 1.6 million people in the United States.

Worse, the retaliatory taxes imposed by China and other nations on U.S. goods had "negative employment impacts,’’ especially for farmers, the study found. These retaliatory tariffs were only partly offset by billions in government aid that Trump doled out to farmers. The Trump tariffs also damaged companies that relied on targeted imports.

Who actually pays tariffs?

Big picture view:

Trump insists that they are paid for by foreign countries. In fact, it is importers — American companies — that pay tariffs, and the money goes to the U.S. Treasury. Those companies, in turn, typically pass their higher costs on to their customers in the form of higher prices. That’s why economists say consumers usually end up footing the bill for tariffs.

Still, tariffs can hurt foreign countries by making their products pricier and harder to sell abroad. Foreign companies might have to cut prices — and sacrifice profits — to offset the tariffs and try to maintain their market share in the United States. Yang Zhou, an economist at Shanghai’s Fudan University, concluded in a study that Trump’s tariffs on Chinese goods inflicted more than three times as much damage to the Chinese economy as they did to the U.S. economy.

Why you should care:

A study this month by Warwick McKibbin and Marcus Noland of the Peterson Institute for International Economics concluded that the 25% tariffs on Canada and Mexico and 10% tariffs on China "would damage all the economies involved, including the U.S.’’

"For Mexico,’’ the study said, "a 25% tariff would be catastrophic. Moreover, the economic decline caused by the tariff could increase the incentives for Mexican immigrants to cross the border illegally into the U.S. — directly contradicting another Trump administration priority.’’

Former trade negotiator Wendy Cutler, now vice president at the Asia Society Policy Institute, said the extent of the economic damage will depend on how long the tariffs are in effect.

If it’s just a few days, "that’s one thing. If they are in place for weeks onto months, we’re going to see supply chain disruptions, higher costs for U.S. manufacturers, leading to higher prices for U.S. consumers,’’ she said. "It could have macroeconomic impacts. It could affect the stock market. Then internationally it could lead to more tension with our trading partners and make it harder for us to work with them.''

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