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By Jenna deJong
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President Donald Trump is set to impose 25 percent tariffs on Canadian and Mexican imports, potentially disrupting nearly $1.6 trillion in annual trade. The tariffs, scheduled to take effect on Saturday, are being introduced as part of Trump's strategy to pressure Canada and Mexico to address illegal immigration and drug trafficking into the United States.
Questions remain about how these tariffs will impact businesses, consumers and the broader economy. A key issue in the debate is understanding who ultimately bears the cost of tariffs and how they function in global trade.
Why It Matters
Tariffs are taxes on imported goods, typically paid by the importing businesses, which can then pass costs onto consumers through higher prices. In this case, the importing business would be any American company that purchases goods from foreign suppliers and brings them into the country for resale, manufacturing, or distribution. Trump's new tariffs could significantly raise costs for products ranging from automobiles to fresh produce, which flow across North American borders daily.
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The potential economic consequences extend beyond price hikes. Canadian Prime Minister Justin Trudeau has vowed to retaliate with "forceful countermeasures," including potential duties on Florida orange juice. Mexico has also indicated it would respond in kind, arguing that the tariffs could cost 400,000 U.S. jobs.
What Is A Tariff?
A tariff is a tax imposed on foreign-made goods, paid by the importing business to the government of its home country. According to the Council on Foreign Relations, tariffs are often used to protect domestic industries by making foreign goods more expensive and encouraging consumers to buy locally. However, they can also lead to trade wars and higher consumer costs.
Historically, countries have used tariffs for various purposes, including national security, protecting jobs and generating government revenue. However, modern trade agreements have reduced their prevalence, as many economists argue they tend to disrupt global supply chains and increase consumer prices.
Who Pays For Tariffs?
Despite being levied on foreign goods, tariffs are typically paid by U.S. businesses that import those goods, not by foreign governments or companies. Importers usually pass these costs on to consumers through higher prices, meaning American shoppers often bear the financial burden.
Matthew Holmes, public policy chief at the Canadian Chamber of Commerce, warned, "President Trump's tariffs will tax America first. From higher costs at the pumps, grocery stores, and online checkout, tariffs cascade through the economy and end up hurting consumers and businesses on both sides of the border."
In industries with slim profit margins, companies may absorb some of the cost, but many will raise prices on everyday goods, making tariffs effectively a tax on consumers.
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How Do Tariffs Work?
A tariff is a tax imposed by a government on imported goods. When a foreign product enters the U.S., the importing business—the company bringing in the goods—must pay the tariff to U.S. Customs and Border Protection. This cost is typically added to the product's price, making the imported goods more expensive for consumers.
Trump's proposed 25 percent tariff means that for every $100 worth of goods imported from Canada or Mexico, an additional $25 tax would be applied before the product enters the U.S. market. Importers must decide whether to absorb the cost, reduce profit margins or pass it to consumers through higher prices.
In some cases, businesses shift supply chains, sourcing goods from other countries without tariffs, but this is not always possible due to cost, quality, or production limitations.
Will Gas And Oil Be Impacted By Trump's Tariffs?
Trump's tariffs on Canada and Mexico could have a broad economic impact. In 2023, Canada supplied 52 percent of U.S. petroleum imports, while Mexico provided another 11 percent. Trump has hinted that crude oil might be exempt from the tariffs, stating, "Oil is going to have nothing to do with it, as far as I'm concerned."
However, he later added, "We may or may not. We're going to make that determination probably tonight—on oil."
Economists warn that imposing tariffs on Canadian and Mexican oil could drive up gasoline prices for U.S. consumers.
"The inclusion of Canada oil in a 25 percent tariff on Canada and Mexico would likely initially raise gasoline prices in the U.S. Midwest," Goldman Sachs analysts wrote in a note quoted by the Financial Post.
Trade lawyer Chandri Navarro of Baker & McKenzie told PBS News, "It's really thrown industry into this turmoil of anxiety. What industry likes is certainty. You're making production decisions, supply chain decisions, purchasing decisions five years out."
What People Are Saying
Kimberly Clausing, an economist and professor at UCLA School of Law, told Newsweek: "Even very high tariffs could only replace a minority of the revenue raised by income taxation, and such high tariffs would cripple the economy."
Dave Evans, cofounder and CEO of supply chain management firm Fictiv, told PBS News: "Unfortunately, it's going to impact a lot of consumers. We saw this in his first term. A tariff isn't fully absorbed by the companies."
Mexican President Claudia Sheinbaum said Friday: "We will always defend the dignity of our people, respect for our sovereignty, and a dialogue as equals without subordination."
What Happens Next
Despite the uncertainty surrounding the implementation and potential exemptions, the White House has confirmed the tariffs will take effect on Saturday. Trump has also indicated that the 25 percent duties on Canada and Mexico "may or may not rise with time."
Experts at Oxford Economics predict that if Trump moves forward with his tariff plans, Canada's GDP could decline by 2.5 percent by early 2026, while inflation and unemployment could rise sharply, potentially pushing the country into a recession.
With potential economic and political fallout on the horizon, business leaders, policymakers, and consumers will be watching closely as Trump's tariff strategy unfolds.
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