US Tariffs on Mexico, Canada: Economic Impact, Trade Uncertainty

The potential imposition of a 25% tariff on goods from Mexico and Canada by the United States has stirred considerable debate and concern. With the possibility of these tariffs being implemented as early as Feb. 1, experts weigh in on the far-reaching consequences of such a decision on the economies of North America, nearshoring, and global trade relations, particularly with China. While some argue these tariffs are part of a negotiation strategy, the implications of this policy could be significant.

The consequences of blanket tariffs would ripple through the global economy, with particular impacts on countries like Mexico, Canada, and China. Gregory Daco, Chief Economist, EY, explains to MBN that tariffs could reduce global GDP by 1.4% over two years. “The increased cost of imports would add significant pressure on consumer prices, with the US real GDP growth expected to drop by 1.2% annually in the first two years after implementation,” he says. 

In particular, Mexico and Canada would see their real GDPs fall respectively, over the next two years: “Given 80% of Mexico exports go to the US and exports represent about 40% of GDP, the Mexican economy would be significantly impacted with real GDP lower by 1.6% in 2025 and 4.5% in 2026. Canada’s significant exports to and imports from the US would lead to a notable hit to its economy, with real GDP lower by 2.7% in 2025 and 4.3% in 2026,” says Daco.

Daco also warns that such tariffs could lead to an inflationary surge in the United States, particularly as the cost of imports increases. He forecasts that Mexico, heavily dependent on US exports, would experience a major economic shock, with a cumulative loss of 1.6% in 2025 and 4.5% in 2026.

Protectionist Measures

Gerardo Tajonar, President, National Association of Importers and Exporters of Mexico (ANIERM), tells MBN that “The probability of this measure being implemented depends on multiple factors that need careful consideration.” He highlights the precedent set during President Donald Trump’s previous administration. At the time, protectionist policies, including tariffs on steel and aluminum, were introduced aiming to strengthen the US economy. While the new tariff threats may be seen by some as negotiation tactics, Tajonar notes that there is also a history of such measures being enforced in the past.

Tajonar estimates that the likelihood of this measure being implemented could fall in a moderate range, about 40% to 60%, depending on how negotiations evolve in the coming days and the political and economic pressure within the United States.

Tajonar adds that the measures could face internal resistance from US businesses reliant on imports from Mexico and Canada, as well as possible interventions from the US Congress. He adds that the USMCA provides mechanisms for dispute resolution that could complicate the implementation of such tariffs.

The Legal Framework of the USMCA and Tariffs

Luis Moreno, Lawyer, Moreno Valdés Abogados, tells MBN that Article 32.1 of the USMCA allows countries to increase tariffs under specific circumstances, as long as they are authorized by the World Trade Organization’s Dispute Settlement Body or a USMCA dispute resolution panel. This provision allows for the potential imposition of tariffs, even under a free trade agreement, as long as the reasons are deemed justified, he adds.

Political Dynamics and Legislative Challenges

In the US Congress, Democrats introduced on Jan. 15, the Prevent Tariff Abuse Act, which aims to limit presidential powers to impose tariffs unilaterally, as reported by MBN. This move points to significant political resistance in the United States. “Trade in normal times is conducted by Congress, not the President. The administration will face challenges in implementing tariffs without Congressional approval, as Democrats seek to limit the executive’s powers in this area,” says Daco. The potential for new regulations on the USMCA, particularly around labor and compensation in industries like automotive manufacturing, adds to the complexity of the situation.

The Logistics Sector Faces Uncertainty

For the logistics sector, the potential tariff increase is more than just an economic issue — it is an operational challenge. “The new tariffs will increase operational costs and disrupt trade flows, making logistics more complex,” says Juan Jesús Romero, CEO, MOSUR, a logistics and cross-border transportation company, to MBN. Romero points out that companies will face higher import costs and longer wait times at border crossings, impacting supply chains across North America.

To mitigate these challenges, companies like MOSUR are focusing on strategies such as optimizing delivery routes, improving customs management, and diversifying markets. “As businesses face uncertainty in US trade policies, we are seeing a shift towards Latin American, EU, and Asian markets. We also recommend strategic warehousing to avoid high costs from urgent imports,” says Romero.

Companies are already preparing for the worst case scenario. “At TRAFFIX, we are assuming that these tariffs will be implemented. We are not leaving room to wait and see because if we do, what is happening right now would be too reactive. We cannot afford that luxury,” says Milton Magos, Vice President Mexico, TRAFFIX, to MBN. The company has seen a significant volume increase in January, partly driven by clients rushing to stock up inventories in the United States before any new tariffs are implemented. “We saw a volume increase of more than 20%. Not in rates, right? Rates have remained stable, fortunately,” says Magos.

However, Magos adds that fuel prices are expected to rise once tariffs are applied, which will likely impact rates. TRAFFIX is working diligently to help customers by ensuring that cargo in transit continues moving, even if tariffs are suddenly implemented. “We are supporting right now; in fact, I have a special team working today until our last load crosses,” he says.

The tariffs could be part of a broader long-term strategy by the US government to strengthen North American economic integration, particularly in light of the ongoing threat from China, says Magos. “I believe that regionalization, which is the nearshoring we have been talking about, continues and will continue, but much more protected and with a firm intention of removing China from the region.”

Mexico’s Response

During her morning press conference, President Claudia Sheinbaum stated: “We have Plan A, Plan B, and Plan C, depending on what the US government decides. It is crucial for the people of Mexico to know that we will always defend our dignity, our sovereignty, and engage in dialogue as equals, as we have always stated, without subordination. It is important to remember the potential implications of imposing tariffs on the US economy, particularly on the trade agreement between the three countries, and for the economies of all three nations.”

She added that a permanent dialogue table with the US government is ongoing to address various issues related to migration and security, based on four principles: shared responsibility, mutual trust, collaboration, and respect for Mexican sovereignty.

Mexican Minister of Economy Marcelo Ebrard says that the 25% tariff would mainly impact US consumers in border states like California, Texas, Florida, and Arizona, as Mexico is their main exporter of cars, computers, TVs, and refrigerators. He explains that US consumers would be affected in three ways: first, by price hikes of 25% on these products; second, by reduced availability due to the contraction in purchasing caused by the higher tax; and third, by potential supply chain issues.

Up to 12 million US families could be affected by higher car prices, 40 million by higher computer prices, and 32 million by higher TV prices, says Ebrard. He adds that one in three refrigerators sold in the US is made in Mexico, meaning 5 million US families could face nearly US$1 billion in additional costs. Moreover, the prices of items such as fruits, vegetables, meat, beer, auto parts, electronics, appliances, and medical equipment, could also increase as they are all made in Mexico, he adds.

Ebrard says that the Mexican government is preparing for this potential measure through weekly working tables led by President Sheinbaum, aiming to address tariff-related issues and negotiations on the USMCA. 

During the 85th General Assembly of the American Society of Mexico (AMSOC), when questioned if Mexico would impose retaliatory tariffs if these materialize, Ebrard said that the Mexican government has planned different scenarios and that it will not act untimely. "We have studied it extensively, prepared thoroughly. There will be no surprises or sudden reactions, there will be a plan," said Ebrard as MBN reported.

Trump’s Tariffs Set to Begin Tomorrow Amid Conflicting Reports

While some reported that the tariffs would be delayed until March 1, Karoline Leavitt, Assistant to the President and White House Press Secretary denied these statements. “Starting tomorrow, those tariffs will be in place. These are promises made and promises kept by the president,” writes the White House on X. 

Kenneth Smith, Partner, AGON Economía/Derecho/Estrategia, argues that Trump may announce the imposition of tariffs but delay their implementation, using the measure as a pressure tactic to negotiate with Mexico on migration and security issues. To do so, he could invoke the International Emergency Economic Powers Act by declaring a national emergency, allowing him to impose, postpone, or remove the tariffs at his discretion.