Why Trump's Tariff Threat Could Be Costly for American Consumers
If President-elect Donald Trump follows through on his threat to impose 25% tariffs on everything imported from Mexico and Canada, the price hikes that could follow would conflict with his campaign promise to give American families a break from inflation, economists warn. Companies would have no choice but to pass on the added costs, dramatically raising prices for food, clothing, cars, alcohol and other goods, they said.
The president-elect floated the idea of tariffs, including additional 10% taxes on goods from China, as a way to force countries to stop the flow of illegal immigrants and drugs into the US. But his posts Monday on Truth Social [the social media site owned by Trump] threatening tariffs on his first day in office may just be a negotiating ploy to get countries to change their behavior.
High food prices were a major issue in voters choosing Trump over Vice President Kamala Harris, but the tariffs will almost certainly raise those costs even further. The Washington trade group, the Produce Distributors Association, said the tariffs would raise prices for fresh fruits and vegetables and hurt American farmers when other countries retaliate.
Mexico and Canada are two of the largest exporters of fresh fruits and vegetables to the US. The US is the world's largest importer of goods, with Mexico, China and Canada its top three suppliers, according to the latest US Census data.
People looking to buy a new vehicle are also likely to see big price increases, at a time when costs have risen so much that many can't afford to buy one. The average price of a new vehicle is around $48,000 (€46,000). About 15% of the 15.6 million new vehicles sold in the US last year came from Mexico, while 8% crossed the border from Canada, according to Global Data.
Most of the charges would be passed on to consumers unless carmakers can quickly find productivity improvements to offset them. This means that even more consumers will "have a possible price". Hardest hit would be Volkswagen, Stellantis, General Motors and Ford, Bernstein analyst Daniel Roeska wrote in a note to investors on Tuesday.
The threat of tariffs hit auto stocks on Tuesday, particularly shares of GM, which imports about 30% of the vehicles it sells in the US from Canada and Mexico, and Stellantis, which imports about 40% from both countries. For both, about 55% of their profitable trucks come from Mexico and Canada. GM shares lost almost 9% of their value, while Stellantis fell nearly 6%.
It's not clear how long the tariffs would last if implemented, but they could force automakers to move production to the U.S., which could create more jobs in the long run. However, Morningstar analyst David Whiston said carmakers probably won't make any immediate moves because they can't quickly change where they build vehicles.
Trump has sound legal justification to impose tariffs, even though they conflict with a 2020 trade deal brokered largely by Trump with Canada and Mexico, said William Reinsch, senior adviser at the Center for Strategic and International Studies and a former -Clinton administration trade official. The treaty, known as the USMCA, is up for review in 2026.
In the case of China, Reinsch said, Trump could simply declare that Beijing has not fulfilled its obligations under an agreement he negotiated in his first term. For Canada and Mexico, he could say the influx of immigrants and drugs are a threat to national security and turn to a section of the trade law he used in his first term to impose tariffs on steel and aluminum.
The law he is most likely to use for Canada and Mexico has a legal process that often takes up to nine months, giving Trump time to seek a deal. If talks fail and duties are imposed, the three countries are likely to retaliate with tariffs on US exports. American companies would lobby intensively against the tariffs and demand that the products be excluded. Some of the biggest exporters from Mexico are American firms that make parts there.
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