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Trump Plans to Impose 25% Tariffs on Mexico, Canada by Feb. 1
Bloomberg January 21, 2025
President Donald Trump signaled plans to impose previously threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1, reiterating his contention that America’s closest neighbors and largest trading partners are letting undocumented migrants and drugs flood into the US.
“We’re thinking in terms of 25% on Mexico and Canada, because they’re allowing vast numbers of people” across the border, Trump said in response to questions from reporters in the Oval Office on Monday night. “I think we’ll do it Feb. 1.”
Earlier in the day, Trump said in his inaugural address that “instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.” He stopped short of mentioning specific countries as tariff targets.
His off-the-cuff comments, though, were aimed at two allies vital for US energy imports and auto supply chains. Any volley of new border taxes threatens to set off a trade war among the signatories of the US-Mexico-Canada Agreement, the successor to Nafta negotiated at Trump’s insistence during his first term. The pact governed the flow of $1.8 trillion in goods and services trade, based on 2022 data.
Read More: US INSIGHT Trump Day One – Tariffs Delayed, Not Denied
Both Canada and Mexico have said they’d retaliate against American goods if Trump slaps tariffs on them. The USMCA is up for review in 2026.
“Canada’s a very bad abuser,” Trump said, complaining about the current of fentanyl and migrants across the northern US border.
The Canadian dollar and Mexican peso, which had rallied earlier Monday on signs Trump would hold off from immediately imposing sweeping tariffs, fell as much as 1.4% each against the greenback on the news. Bloomberg’s dollar gauge rose as much as 0.7%, the most since Dec. 18.
Betting on the greenback has become one of Wall Street’s favored trades for investors anticipating that an expansion of tariffs will crimp global growth, lift US inflation and potentially cause the Federal Reserve to refrain from lowering borrowing costs — all of which would support the US currency.
There was some relief in Chinese markets as Trump fell short of announcing immediate levies against the world’s second-largest economy. An index of Chinese stocks traded in Hong Kong rose 1%, while gauges in the mainland fluctuated. The offshore yuan slipped 0.2%, but held on to most of its Monday rally.
De Minimis Review
In an executive action released Monday, Trump called for broad reviews of trade oversight and relationships, including persistent bilateral goods deficits, the formation of an External Revenue Service to collect tariffs, currency misalignments and the duty-free implementation of packages valued at $800 or less — known as de minimis exemptions.
Tariffs of the magnitude Trump is proposing on US neighbors would “cripple” US carmakers, according to Nicole Gorton-Caratelli and Maeva Cousin at Bloomberg Economics. The transport sector more broadly is the most integrated in North America, and the proposed tariffs would affect US value added that’s embedded in cars imported from Canada and Mexico — “so tariffs on these goods mean the US would effectively be tariffing itself,” they wrote in a recent analysis.
Stellantis NV imports about 40% of the vehicles they sell in the US, while General Motors Co. imports roughly 30% and Ford Motor Co. 25%, Bernstein analysts said in a November research note.
The additional levies would hit about $97 billion worth of auto parts and 4 million finished vehicles that come into the US from those countries, and could boost average new-car prices by about $3,000, according to Wolfe Research.
Trump also indicated he was still considering a universal tariff on all foreign imports to the US, but said he was “not ready for that yet.”
“You’d put a universal tariff on anybody doing business in the United States, because they’re coming in and they’re stealing our wealth,” he said, adding that implementation could be “rapid.”
In a Nov. 25 post on Truth Social, Trump warned he’d impose 25% tariffs on all Mexican and Canadian imports as “one of my many first Executive Orders” and said it “will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”
Those tactics set off a scramble in Mexico City and Ottawa to demonstrate to the incoming president that both governments were addressing his concerns.
Last year there were just over 1 million encounters with illegal border crossers by US Border Patrol at the US-Mexico border. There were 22,369 such encounters at the northern border, according to data from US Customs and Border Protection.
The US border service seized about 20,600 pounds of fentanyl at the Mexico-US border and 50 pounds at the Canada-US border, the data showed.
Within days, Prime Minister Justin Trudeau, who has since said he’s stepping down, flew to Florida to impress upon Trump that the number of migrants who cross the country’s border into the US is small, and that Canada is also working closely with the US to stop drug smuggling.
Canada has also drawn up an initial list of C$150 billion ($105 billion) of US-manufactured items that it would hit with tariffs if the first salvo comes from Trump, who has taunted Canadians with an invitation to become the 51st US state.
“None of this should be surprising. The one thing we’ve learned is that President Trump at moments can be unpredictable,” Dominic LeBlanc, Canada’s finance minister, told reporters shortly after Trump’s comments.
The Canadian government will keep talking about border security and other issues with the Trump administration, LeBlanc said. “In our conversation with American officials, we have spoken about our shared commitment to the fight against fentanyl, to ensuring that immigration is orderly and legal.”
In December, Trudeau’s government presented a plan to spend about $1 billion on additional measures such as more helicopters and drones for near the border.
Mexico has sought to avoid the imposition of tariffs, taking actions to placate Trump including seeking to reduce imports from China and carrying out a record fentanyl seizure.
Mexican President Claudia Sheinbaum’s government has said the tariffs could affect the $800 billion of annual trade between the countries and would potentially drive inflation in the US.
https://gcaptain.com/trump-plans-to-impose-25-tariffs-on-mexico-canada-by-feb-1/