President Donald Trump’s Threat to Impose Tariffs on Canada and Mexico Could Plunge Neighbors into Recession
President Donald Trump’s threat to impose 25% tariffs on all goods from Canada and Mexico could plunge America’s closest neighbors into recession. Trump has threatened to impose the tariffs on February 1 in response to what he views as inadequate border security failing to stop drugs and migrants from coming into the United States.
Economists warn that the tariffs would swiftly send the Canadian and Mexican economies into recession and likely lift consumer prices for Americans on cars, gasoline, and other imported items. “This would be a real trade war, not a trade skirmish. This is serious. You would see job loss and people lose their homes,” said Joe Brusuelas, chief economist at RSM.
However, some on Wall Street believe Trump is bluffing, and investors are not dumping stocks. CEOs are not panicking, and economists have not dimmed their growth forecasts. Despite Trump’s threats, Goldman Sachs told clients this week that there’s just a 20% chance the president imposes a 25% tariff on Canada and Mexico.
The tariffs could also drive gas prices up, as Canada is America’s largest source of foreign oil. Analysts estimate that tariffs on Canadian and Mexican oil could lift US consumer prices for gasoline, diesel, and other petroleum products. Unless Canadian oil is excluded from the tariffs, gas prices could jump by 20 to 50 cents a gallon in the Great Lakes region.
The real damage from the tariffs would likely be even higher because of how closely linked the two nations are. The auto industry treats North America as if it’s one country, not three. Parts and cars are made in factories spanning the entire continent. Car buyers would be directly hurt, with the average cost of a car purchased in the United States climbing by about $3,000.
Mexico is most vulnerable to the tariffs, as its economy is heavily reliant on exporting goods to the United States, which account for more than 25% of its GDP. Mexico’s economy is “hugely exposed” to tariffs, and economists expect tariffs would push Mexico into recession later this year.
Canada and Mexico are unlikely to take US tariffs lying down, and that raises the specter of a tit-for-tat cycle of escalation. “Everything is on the table,” Canadian Prime Minister Justin Trudeau said earlier this week.
