US President Donald Trump is set to announce new tariffs on major trading partners—Canada, Mexico, and China—on Saturday, a move that could disrupt supply chains across sectors such as energy and automobiles and raise concerns about inflation.
Trump has promised to impose a 25% tariff on imports from Canada and Mexico, citing their failure to curb illegal immigration and the flow of fentanyl into the US. He also plans a 10% tariff on goods from China, accusing the country of being involved in the production of the drug. The tariffs are part of Trump’s ongoing focus on the large trade deficits the US runs with these nations.
However, the move carries risks for Trump, especially considering that he won the November election largely due to dissatisfaction with living costs. Higher import costs could dampen consumer spending and business investment, according to Gregory Daco, Chief Economist at EY. He forecasts inflation could rise by 0.7 percentage points in the first quarter of this year as a result of the tariffs, before gradually easing.
Some of Trump’s supporters have downplayed concerns about inflation, suggesting that his policies on tax cuts and deregulation could stimulate growth.
Potential Impact on Agriculture and Auto Industries
Democratic lawmakers, including Senate Minority Leader Chuck Schumer, have criticized Trump’s tariff plans. Schumer expressed concerns that the tariffs would lead to higher costs for American consumers. Canada and Mexico are key suppliers of US agricultural products, with imports totaling tens of billions of dollars annually from each country. The tariffs would also significantly affect the auto industry, as 22% of all light vehicles sold in the US in 2024 were imported from Canada and Mexico, according to S&P Global Mobility.
Automakers and suppliers across the region produce key components, meaning tariffs would likely increase vehicle costs. Schumer argued that the US should focus on competitors like China, rather than imposing tariffs on its allies.
Both Canada and Mexico have indicated they are prepared to retaliate if Trump moves forward with the tariffs, raising the potential for an escalating trade conflict. White House Press Secretary Karoline Leavitt, however, downplayed concerns about a trade war.
Canada and Mexico Prepare for Retaliation
Canadian Prime Minister Justin Trudeau stated that Ottawa is prepared to respond with “a purposeful, forceful, but reasonable, immediate response” if the tariffs are imposed. Similarly, Mexican President Claudia Sheinbaum said her government would take a measured approach, adding that they had prepared multiple plans for any scenario.
Potential Impact on US Energy Prices
Imposing tariffs on crude oil imports from Canada and Mexico could also have significant consequences for US energy prices, especially in the Midwest, according to experts David Goldwyn and Joseph Webster. Trump previously suggested he might exempt Canadian and Mexican oil imports from the tariffs, and on Friday, he indicated he was considering reducing the rate for oil imports to 10%.
Canada is the source of nearly 60% of US crude oil imports, and its heavy oil is refined in the US. Tariffs on Canadian oil would impact both Canadian producers and US refiners, potentially leading to higher gasoline prices.
