Unleashing Prosperity Through Deregulation
President Donald Trump signed an executive order, “Unleashing Prosperity through Deregulation,” in the Oval Office on January 31, 2025. However, this executive order took a backseat to a more pressing issue: tariffs against Mexico, Canada, and China. On Saturday evening, Trump announced the implementation of 25% wholesale tariffs on both Mexico and Canada, with China facing a 10% tariff.
The tariffs apply to most categories, except for Canadian energy, which will be subject to a 10% tariff instead of 25%. The impact of these tariffs will be felt across a range of products, including fruits, vegetables, beer, liquor, and electronics from Mexico, as well as potatoes, grains, lumber, and steel from Canada.
The tariffs will not only affect consumer prices but also compound already high grocery prices. The Bureau of Labor Statistics reported a 28% increase in grocery prices over the last five years. With automotive supply chains deeply intertwined between the three countries, cars and auto parts will also become more expensive.
Tariffs could have a significant impact on the U.S. economy, according to EY Chief Economist Gregory Daco. “We tend to think a lot about merchandise goods as being automotive goods, furniture goods, and these types of heavy equipment goods. But we should not forget that we also do a lot of trade on the agricultural front.”
The tariffs come with a “retaliation clause,” allowing the White House to increase tariffs if any country retaliates. Trump has cited a “fentanyl and drug crisis” facilitated by China, Mexico, and Canada as the reason for imposing the tariffs under the International Emergency Economic Powers Act.
The U.S. is targeting its top three trading partners, accounting for over $1.2 trillion of imports last year. The 10% tariff on Canadian energy will also have implications for U.S. refineries and gas prices at the pump.
Daco warned that imposing tariffs on large trading partners would have severe economic consequences for the U.S., Mexico, and Canada, potentially leading to a higher inflation environment and lower growth environment due to the importance of trade with these economies.
