This week, President-elect Donald Trump announced planned tariffs against Mexico and Canada. Here is what to know about the plan.
Trump said in a social media post Monday night that he would put the tariffs into motion on Jan. 20, 2025, the day he is sworn in, and that the 25% tariffs are designed to coerce the two countries into stopping the flow of narcotics and illegal immigrants into the United States.
“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” Trump said on social media. “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
During his first term, Trump also leveraged the threat of tariffs to exact immigration concessions from Mexico, so there is a model for what might be expected this time around. Markets were mixed on Tuesday about the news, with some analysts thinking that the threat may be a negotiating tactic rather than a firm policy commitment.
In addition, Trump vowed additional 10% tariffs on China for its role in producing some of the ingredients used to produce the fentanyl that makes its way to users in the U.S.
Why is Canada included?
The crisis at the U.S. border with Mexico is far more dire than any problems on the border with Canada. Still, Trump’s team has noted that drugs and illegal immigrants have managed to come into the U.S. through Canada.
Trump tapped Tom Homan as border czar and tasked him with reining in illegal immigration and the flow of illicit narcotics in the U.S. In a recent interview, Homan said that the reallocation of resources to the southern border has left border agents at the Canada-U.S. border “overwhelmed” and “overrun.”
“The problem with the northern border is a huge national security issue,” Homan said.
Bill Reinsch, a trade policy expert with the Center for Strategic and International Studies who served for 15 years as president of the National Foreign Trade Council, said the looming expiration of the United States–Mexico–Canada Agreement also might be playing a part in Canada’s inclusion.
“Since USMCA is up for renegotiation anyway in 2026, it kind of makes sense to deal with both countries at the same time,” Reinsch told the Washington Examiner.
Canadian Immigration Minister Marc Miller said Tuesday that, following the tariff threat, his country is considering several measures at the U.S.-Canada border, including additional resources.
What goods would be hit by the tariffs?
Notably, Trump made a point in his statement to emphasize that the 25% tariffs would be added to “ALL” products coming into the U.S. from Mexico and Canada. If that happens, some industries will be hit harder than others.
Clark Packard, a research fellow with the Cato Institute, said the auto industry, in particular, could feel the brunt of such tariffs. He noted the tightly integrated supply chains among the three countries and said that the parts that go into constructing a vehicle can pass across the border multiple times before the final product hits automotive lots.
Shares of General Motors were down more than 8.6% Tuesday afternoon in response to the news, Ford was down about 2.75%, and Stellantis was down nearly 6%.
Reinsch said the chassis of a car moves all around to different factories before being finalized and has parts from several countries.
“Every time it crosses the border, if it has to pay a 25% tariff, that’s going to be huge for the auto guys,” Packard said.
Rodney Lake, vice dean for undergraduate programs at George Washington University and director of the university’s Investment Institute, told the Washington Examiner that the tariffs would also affect the energy sector and pointed out that Canada is the biggest exporter of oil and gas into the U.S. He said that of the 7.8 million barrels of oil a day that flow into the U.S., about 4.4 million come from Canada and could face tariffs.
Consumers could see price hikes on agricultural products such as avocados and bananas coming in from Mexico and goods such as tequila, given the limited domestic production of such items in the U.S.
What happened last time this was tried?
This is not the first time that Trump has menaced tariffs against Mexico.
In his first term, Trump threatened to use the International Emergency Economic Powers Act to impose tariffs on all Mexican imports, leveraging the threat to exact concessions on immigration. Trump later withdrew the threat after Mexico agreed to make some changes to its immigration enforcement.
“He basically threatened to impose tariffs on Mexico of 5% that would gradually increase if Mexico didn’t take steps to curb illegal immigration across the southern border,” Packard told the Washington Examiner.
There are mixed reviews on how effective Trump’s 2019 tariff threats were.
In one sense, the threat could be seen as effective, as the USMCA was drafted in the fallout from the push. Lake said it could be argued that the threat of those tariffs drew Canada more to the negotiating table.
The USMCA replaced the North American Free Trade Agreement, and the new USMCA treaty might be seen as more favorable to the U.S. than NAFTA was.
“It ended up with a renegotiation of NAFTA, and everybody was satisfied — it was actually Trump’s probably most significant trade victory,” Reinsch said.
Is this all legal?
Trump said in his statement that he intends to pursue these 25% tariffs on Day One of his administration and do so unilaterally without Congress’s assistance. He likely has two levers he can pull to do so.
Trump could try to use IEEPA, a 1977 law that is often used to impose sanctions on adversaries, to declare an economic emergency. From there, he would have broad powers, including tariff powers.
As previously mentioned, Trump had threated to use IEEPA to push through tariffs in 2019. Trump might face litigation over tariffs imposed through the IEEPA. However, the question would then become whether the plaintiffs could find a judge willing to grant an injunction to prevent the tariffs from going into effect while the case is being litigated.
If no judge signs off on a stay, the tariffs could hold up for months or years as the case winds its way through the court system.
But to exact concessions, Trump might end up dangling the tariffs as a threat to force negotiations and get concessions given the market reaction that could stem from the immediate application of tariffs.
Reinsch said Trump could declare an international economic emergency on Jan. 20 and impose the tariffs but also declare that he is suspending them for a set deadline to allow Mexico and Canada to negotiate.
Trump could also argue that the immigrants and fentanyl entering the country are national security threats and initiate an investigation under Section 232 of the Trade Expansion Act of 1962, which gives the president broad power to levy tariffs if there is a threat to national security. That would start a process that could take up to nine months and also buy time for negotiations, according to Reinsch.
What could stop these tariffs from taking place?
Again, the countries could come to some form of an agreement under suspended IEEPA tariffs to have the emergency declaration revoked, but there is a major question of what exactly Trump is looking for in terms of a quantifiable change in immigration and fentanyl coming into the U.S.
Trump could set targets for each country to meet but has not offered any specifics.
“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” Trump said in his announcement.
The Washington Examiner reached out to a Trump spokesperson about further details of the plan but did not receive a response.
Further complicating things, Mexican President Claudia Sheinbaum hinted that her country would retaliate with its own tariffs if Trump goes through with the plan. The Mexican president referenced U.S. automakers that have plants in her country during her Tuesday remarks.
“One tariff would be followed by another in response, and so on until we put at risk common businesses,” Sheinbaum said.
How does Scott Bessent fit into all of this?
Trump has tapped hedge fund chief Scott Bessent to be his next treasury secretary. Bessent will undoubtedly have Trump’s ear for any major decisions such as this and likely have some sway in how it all shakes out.
The Treasury Department worries more about macroeconomic conditions and financial stability. Some experts who spoke to the Washington Examiner anticipated that Bessent might try to dampen the extent or effects of such tariffs.
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“You know, when they’re seeing a huge market reaction if these tariffs were to be put into place, he might be more of a moderating voice,” Packard said.
Still, as far as implementation of the tariffs, that could fall to other agencies. For instance, if Trump decides to use Section 232 to pursue the tariffs, the Commerce Department would be the one doing the investigation.
