Trump's Tariffs: A Targeted Strike on Key Industries

As President Trump follows through on his promise to impose steep tariffs on America's three largest trading partners, the global supply chain braces for impact. The action, expected to take effect on Tuesday, includes a 25% duty on all imports from Mexico and most goods from Canada, with a 10% carve-out for energy-related items. An additional 10% tariff will be levied on Chinese goods imported into the United States. Let's take a closer look at the goods in the crosshairs of these tariffs and their potential impact on the U.S. economy and consumer behavior.



Food and Agriculture

Mexico is the largest supplier of fruit and vegetables to the U.S., while Canada leads in exports of grain, livestock, and meats, poultry, and more. With a 25% tariff on Mexican and Canadian imports, grocery retailers may struggle to absorb higher tariff costs due to their thin profit margins, potentially leading to higher prices for consumers.

For instance, avocados account for $3.1 billion of the $9 billion worth of fresh fruits imported from Mexico. The U.S. also imports $8.3 billion worth of fresh vegetables, $5.9 billion of beer, and $5 billion of distilled spirits from Mexico. These products could see significant price increases, with avocados being a particular concern as Super Bowl Sunday approaches.

Automobile and Auto Parts

The U.S. imported $87 billion worth of motor vehicles and $64 billion worth of vehicle parts from Mexico in 2023. A 25% tariff on these imports could lead to higher vehicle prices. Automakers may adapt by increasing production in the U.S. or finding alternative suppliers, but this could be costly and time-consuming. The average U.S. automobile price could jump by about $3,000 due to the tariffs, according to TD Economics.

The U.S. also imported $37 billion worth of cars and $20 billion worth of auto parts from Canada in 2023. A 25% tariff on these imports could also lead to higher vehicle prices.



Energy

Canada provides about 20% of the oil used in the U.S. A 10% tariff on Canadian oil imports could add 30 to 40 cents a gallon at the pump within days of the new duties taking effect. Energy companies may adapt by increasing domestic production or finding alternative suppliers, but this could take time and may not be feasible in the short term, leading to higher gasoline prices.

Most Canadian oil is shipped to Midwest refineries via pipeline, affecting states like Idaho, Illinois, Indiana, Iowa, and others. Gasoline prices are typically near a low for the year in February due to weak demand. If the tariffs stay in place through summer, the impact will be greater.

Lumber

About one-third of softwood lumber used in the U.S. is imported from Canada. A 25% tariff on Canadian lumber could cause a "supply shock" and lead to higher lumber prices. Lumber companies may adapt by increasing domestic production or finding alternative suppliers, but this could take time and may not be feasible in the short term, leading to higher construction costs.



Retaliatory Tariffs and Countermeasures

Retaliatory tariffs from Canada and Mexico, as well as potential countermeasures from China, are expected to have significant impacts on the U.S. economy and consumer behavior. These impacts could include increased prices for consumers, disrupted supply chains, reduced consumer spending, increased inflation, and potential job losses.

In conclusion, the targeted tariffs on specific goods from Mexico, Canada, and China will have immediate impacts on consumer prices for food, energy, and other goods, as well as long-term effects on supply chains, inflation, economic growth, and the potential for a trade war. The retaliatory tariffs and countermeasures from Canada, Mexico, and China will further exacerbate these impacts, leading to increased prices, disrupted supply chains, and potential job losses. As the global supply chain braces for impact, consumers and businesses alike must prepare for the potential consequences of these tariffs.