Trump Pulls Punches on Tariffs on Canada and MexicoTrump Pulls Punches on Tariffs on Canada and Mexico

President Trump, during his first hours in office yesterday, signed an executive order to “evaluate” trade with China, Mexico and Canada, but the move neither imposes a universal tariff nor orders a promised 25% tariffs on the three countries that have been most in Trump’s crosshairs.

Trump said in November that he would levy 25% tariffs on the U.S.’s three largest trading partners. Indeed, his economic policy articulated during the campaign hinged largely on imposing sweeping tariffs on foreign goods coming into the U.S., despite the fact that his explanation of how tariffs work contradicted reality.

Time and time again, candidate Trump told voters that tariffs are paid by foreign countries into the U.S. Treasury. In fact, it’s the companies that import foreign goods who pay the tariffs and then pass those costs onto customers and consumers. That would seem to contradict Trump’s rhetoric about lowering prices of everything from automobiles to groceries. Inflation, brought about, say economists, by supply chain issues and the post pandemic bounce-back that saw companies raise prices to make up for pandemic-related profit declines and subsequently leave them there, was a major campaign issue for voters.

He told reporters he "could" impose tariffs on Mexico and Canda by February 1. While such a move would hurt the economies of some red and key swings states, Trump has the power to do it if he declares a state of emergency on the southern and northern borders despite border crossings by illegals trending lower.

The International Emergency Economic Powers Act (IEEPA) of 1977 grants the president authority to regulate commerce, even overturning an existing trade agreement, in response to any unusual or extraordinary "threat" to the U.S. that has a foreign source.

In 2023, Canada exported approximately $439.6 billion in goods to the U.S., accounting for 78% of the country’s total exports. Canada exports a variety of vehicles to the U.S., including models from manufacturers such as Stellantis, Toyota and General Motors. Stellantis, for instance, operates assembly plants in Ontario, producing such vehicles as the Chrysler Pacifica and certain Jeep models for the U.S. market.

Toyota's Canadian manufacturing facilities in Cambridge and Woodstock, Ontario, produce the Toyota RAV4 and Lexus RX models, many of which are exported to the U.S.

GM also manufactures vehicles in Canada that are sold in the U.S., including the Chevrolet Equinox.

In addition, automakers import considerable parts and modules from Canadian plants.

In 2023, Mexico exported approximately $475.2 billion in goods to the U.S., accounting for about 80% of Mexico's total exports.

Volkswagen, Toyota, Stellantis, Ford, GM, Nissan, Mazda, Kia and BMW all import vehicles into the U.S. from Mexico, and there is a considerable portfolio of parts imported from Mexico.

Tariffs on Canada and Mexico would raise prices on vehicles at a time when affordability of new models is a major problem for both automakers and consumers. The industry sold 16 million new vehicles in the U.S. in 2023, but many consumers have had to take out expensive long-term loans to pay for them.

The auto industry and economists have been warning Trump of the havoc tariffs imposed on Canada and Mexico would cause. Moreover, the U.S. has a trade agreement in place, negotiated during Trump’s previous term. The United States-Mexico-Canada Agreement (USMCA), is a modernized version of the North American Free Trade Agreement (NAFTA). It was enacted on July 1, 2020, and was designed to enhance trade relations among the three border nations.

Trump says he is targeting energy costs, especially prices at the gas pump, to make driving internal-combustion-engine vehicles more affordable. In 2023, the U.S. imported an average of 3.9 million barrels per day of crude oil from Canada, according to the U.S. Energy Information Admin., accounting for 60% of total U.S. crude-oil imports. These imports represented approximately 24% of the crude oil processed in U.S. refineries in 2023, up from 17% in 2013. Tariffs on Canadian oil and gas would raise energy prices.

GM CEO Mary Barra and Ford CEO Jim Farley have talked privately with President Trump between the election and inauguration to discuss issues around BEVs and tariffs.

Alliance for Automotive Innovation CEO John Bozella says he sent a detailed letter to President Trump after the election and expects to sit down with the President’s advisors. Ironically, Tesla CEO Elon Musk, who is one of Trump’s most influential advisors and biggest financial backers of his campaign, has kept the EV maker out of the Alliance and has routinely criticized legacy automakers.

Many political pundits believe Trump is not out to raise tariffs on Mexico and Canada, but is using the threat of tariffs and the scuttling of the USMCA as leverage to get other things he wants, especially border security on the Mexican and Canadian sides.