With less than 24 hours until President Donald Trump’s deadline to impose sweeping tariffs on the United States’ three largest trading partners—Canada, Mexico, and China—the global economy is bracing for impact.
Shortly after taking office this month, Trump announced plans to introduce 25 percent tariffs on Canada and Mexico starting February 1, unless they took stronger action against illegal border crossings and the flow of deadly fentanyl into the U.S. He also signaled an additional 10 percent tariff on Chinese goods as early as Saturday, citing similar concerns over fentanyl.
On Thursday, Trump reaffirmed his commitment to these tariffs and reiterated threats of imposing 100 percent duties on BRICS nations—Brazil, Russia, India, China, and South Africa—if they move to create a rival to the U.S. dollar.
Fentanyl, a drug many times more potent than heroin, has been linked to tens of thousands of overdose deaths annually. Beijing has denied allegations of its involvement in the illicit trade, while Canada has argued that less than one percent of undocumented migrants and fentanyl entering the U.S. come through its northern border.
According to JPMorgan analysts, Trump’s tariff threats serve as a bargaining tool to accelerate renegotiations of a trade deal between the U.S., Mexico, and Canada. However, dismantling a decades-old free trade framework could cause significant economic disruption, a recent JPMorgan note warned. The report also pointed out that, during Trump’s first term, policy shifts were often announced abruptly.
Tariffs are paid by U.S. businesses on imported goods, with the economic burden falling on importers, foreign suppliers, or consumers.
Wendong Zhang, an assistant professor at Cornell University, estimated that Canada and Mexico would bear the greatest economic losses under the 25 percent tariffs, with proportional retaliatory measures expected from both countries.
“Canada and Mexico could see real GDP declines of 3.6 percent and 2 percent, respectively, while the U.S. would suffer a 0.3 percent drop,” Zhang said.
Tony Stillo of Oxford Economics warned that broad U.S. tariffs and Canada’s potential retaliatory response could push Canada into a recession this year, while also putting the U.S. at risk of a mild downturn. Mexico could face similar economic consequences, according to Tim Hunter of Oxford Economics.
It remains unclear whether any exemptions will be made. Trump indicated that he would decide by Thursday whether to include crude oil imports in tariffs on Canada and Mexico. According to a Congressional Research Service report, the two countries supply over 70 percent of U.S. crude oil imports, with Canada alone accounting for nearly 60 percent. Stillo noted that Canada exports heavy crude, which is refined in the U.S., and that finding substitutes for it would be difficult.
Most U.S. imports from Canada and Mexico currently enter duty-free or with low tariffs, according to the Peterson Institute for International Economics (PIIE). A tariff hike would disrupt supply chains across industries, affecting everything from machinery to fruit, a PIIE report stated Thursday.
This week, Canadian officials said Ottawa would provide pandemic-level financial assistance to workers and businesses if the U.S. moves forward with tariffs. Prime Minister Justin Trudeau added Wednesday that his government was working to prevent the levies and stood ready to respond forcefully if they were enacted.
Meanwhile, Mexican President Claudia Sheinbaum expressed confidence that her country could avoid the tariffs.
Howard Lutnick, Trump’s nominee for commerce secretary, suggested Wednesday that tariffs could be avoided if Canada and Mexico took action on immigration and fentanyl.
Trump is also considering fresh tariffs on Chinese goods. White House spokeswoman Karoline Leavitt told reporters this week, “The president has said that he is very much still considering that for February 1st.”
Beijing has vowed to defend its national interests, with a foreign ministry spokeswoman previously warning that “there are no winners in a trade war.”
On the campaign trail, Trump has floated the idea of imposing tariffs of 60 percent or higher on Chinese imports.
Isaac Boltansky, an analyst at financial services firm BTIG, expects a gradual increase in tariffs on Chinese goods, with consumer products facing smaller hikes.
“Our sense is that Trump will alternate between pressure and incentives with China, ultimately aiming for a major deal before the end of his term,” Boltansky said in a recent note.
