President Donald Trump has announced plans to impose tariffs of up to 25% on imports from Mexico and Canada by February 1 despite the US-Mexico-Canada Agreement (USMCA).
The move, which Trump justified by citing the flow of undocumented migrants and drugs into the United States, threatens to destabilize the $1.8 trillion trade pact.
“We’re thinking in terms of 25% on Mexico and Canada because they’re allowing vast numbers of people into the country,” Trump said while responding to reporters in the Oval Office. “I think we’ll do it February 1.”
Both Mexico and Canada have vowed to impose countermeasures if the tariffs take effect, signaling the potential for a trade war that could disrupt the supply chain for key industries, including automotive and energy.
Investors King gathered that the tariffs if implemented could severely impact industries reliant on cross-border trade, particularly the automotive sector.
The additional levies are expected to affect $97 billion worth of auto parts and 4 million finished vehicles, potentially increasing the average cost of a new car by $3,000, according to Wolfe Research.
Economic and Trade Implications
Analysts have warned that the proposed tariffs could spell disaster for the US auto industry, which relies heavily on imports from Mexico and Canada. Bernstein analysts also noted that Detroit automakers would be particularly affected, with Stellantis NV, General Motors Co., and Ford Motor Co. importing a significant percentage of their vehicles from these countries.
In financial markets, the announcement caused immediate ripple effects. Bloomberg’s dollar gauge rose by as much as 0.7%, the largest gain since December 18, while the Canadian dollar and Mexican peso fell by over 1% against the US dollar.
Mexico and Canada Respond
Canadian officials were quick to push back against Trump’s accusations. “Canada’s a very bad abuser,” Trump claimed, referring to the northern neighbor’s alleged role in fentanyl and migrant flows across the US border.
“In our conversation with American officials, we have spoken about our shared commitment to the fight against fentanyl, to ensuring that immigration is orderly and legal,” LeBlanc said.
Canada has already outlined a list of $105 billion in US-manufactured goods that could face tariffs in retaliation.
The Trudeau administration also unveiled plans in December to invest $1 billion in border security measures, including additional drones and helicopters.
Mexico has sought to avoid the imposition of tariffs by cracking down on drug trafficking and reducing imports from China.
President Claudia Sheinbaum’s government recently carried out a record fentanyl seizure and highlighted the economic risks of tariffs, which could affect $800 billion in annual trade between the US and Mexico.
Universal Tariff Proposal
Trump also hinted at a broader strategy, saying he was still considering a universal tariff on all foreign imports. “You’d put a universal tariff on anybody doing business in the United States because they’re coming in and they’re stealing our wealth,” he said. While he noted that implementation could be “rapid,” he added, “I’m not ready for that yet.”
Future of the USMCA
Investors King gathered that the USMCA, renegotiated under Trump’s first term, governs trade among the three countries and is up for review in 2026.
Trump’s tariff threats could strain the pact’s framework with both Mexico and Canada signaling their readiness to defend their economic interests.