The price of these goods could be impacted by Trump tariffs
Donald Trump has suggested he will put a 25% tariff on imported goods from Mexico and Canada. How will this affect the cost of goods?
The tariffs President-elect Donald Trump has threatened to impose on imports from Mexico and Canada would significantly increase U.S. inflation next year and modestly curtail economic growth, economists and trade experts say.
Monday, Trump vowed to slap all goods shipped to the U.S. from Mexico and Canada with a 25% tariff and all Chinese imports with a 10% levy on his first day in office, Jan. 20. In a social media post, Trump said his aim is to pressure the countries to stop the flow into the U.S. of illegal drugs and immigrants who lack permanent legal status.
Several experts said the threat was likely a negotiating tactic intended to prod the countries to take action on drugs and immigration. Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, said the Trump administration likely would schedule the fees to take effect in March, giving the countries time to negotiate a deal that addresses the issues.
Otherwise, he said, the levies likely would spark retaliatory tariffs from Mexico and Canada, creating a potentially intractable trade conflict.
“At that point, it’s very difficult to unwind the tariff wars,” Hufbauer said.
But if Trump follows though on his pledge, it would substantially boost inflation next year after pandemic-induced consumer price increases had largely abated, economists said.
Economists already had anticipated at least a 10% tariff on Chinese imports next year and built that into their forecasts. During his presidential campaign, Trump said he would impose a 10% to 20% tariff on all imports and as much as a 60% duty on Chinese goods to incentivize companies to move production to the U.S. or buy American-made products.
What does America import from Mexico?
High tariffs on Mexico and Canada were not expected and would violate the North American trade pact that took effect in 2020. The U.S. imported $480 billion in goods from Mexico last year, including vehicles, electrical equipment, machinery, furniture, plastics and metal, according to Trading Economics.
How much does the US import from Canada?
The $429 billion in 2024 imports from Canada included vehicles, machinery, wood, metal and pharmaceutical products, Trading Economics figures show.
New fees on goods from Mexico, Canada and China would cost a typical American family an additional $1,300 a year, said Brendan Duke, senior director of economic policy a the left-leaning Center for American Progress.
Tariffs would especially hobble the U.S. auto industry, which imports raw materials from Mexico to make parts that are then shipped back to that country for vehicle assembly, Hufbauer said. Some parts cross the border several times as they’re enhanced before vehicles are sold to American consumers, potentially piling on several rounds of tariffs.
The duties could increase the price of cars and trucks sold in the U.S. by about 10%, Hufbauer said. And by damping auto sales or prompting manufacturers in other countries to switch to non-U.S. parts suppliers, the levies could mean layoffs for some of the 1 million U.S. auto manufacturing workers., Hufbauer said.
While manufacturers or retailers could absorb some of the cost increases, Deutsche Bank figures most would be passed through to American consumers. About 5% of the goods and services that make up the Fed’s preferred inflation index are imported from Canada or Mexico, Deutsche Bank estimates.
What is the inflation target for 2025?
The research firm had expected a core measure of that inflation index, which excludes volatile food and energy items, to dip just slightly from 2.7% in September to 2.6% by the end of next year because of Trump’s planned tariffs on Chinese goods. Duties on the North American trading partners likely would push inflation higher, to 3.7% next year, Deutsche Bank said in a research note.
Without any levies, inflation probably would have tumbled to 2.2% in 2025, said Deutsche Bank economist Justin Weidner.
Goldman Sachs predicts tariffs on Mexico and Canada would lead to a slightly smaller 0.9% rise in the core inflation measure in 2025.
But that measure had fallen sharply from a peak of 5.6% in early 2022.
“Inflation was set to come down” further, Weidner said. “This would undercut the progress.”
He added that prices theoretically would increase just next year but wouldn’t continue to rise due to tariffs after that, allowing inflation to return to the lower rate that would have prevailed absent the levies in 2026. But the level of prices would be permanently higher, Weidner said.
Trump won the presidential election early this month because of Americans’ frustration over inflation and their perception of the Biden-Harris administration’s role in contributing to it, polls showed. Trump pledged to bring down prices.
How much will the US economy grow?
The new fees also would hurt economic growth. By reducing consumer spending and prompting Mexico and Canada to retaliate with tariffs on U.S. shipments to those countries – largely on agricultural products – the fees could lower the nation’s economic growth by three-tenths of a percentage point in 2026 to just under 2%, Weidner said.
Among other effects, higher inflation could mean the Federal Reserve will lower interest rates fewer times next year, damping consumer and business borrowing and economic activity, Weidner said.