Canada tariffs, Mexico create ‘domain effects’ on consumer prices

Tariffs on Canada and Mexico It entered into force on Tuesday – And they are obliged to increase prices for consumers, sometimes unexpectedly, according to economists.

Tariffs are a tax on foreign imports, paid by the United States entity that imports a particular good.

President Trump on Tuesday imposed a 25% tariff in Canada and MexicoThe two largest commercial partners in the United States. Trump established a lower 10% tariff on Canadian energy.

Companies generally transmit some of the additional costs of tariffs for consumers, economists said.

Certain products such as fruits and vegetables from Mexico and Canada oil, which are among their main exports to the United States, will become more expensive as a result, economists said.

But there are also high reach impacts on supply chains that are not so clear, they said.

“Tariffs create domain effects that move through complex supply chains in ways that are not always obvious,” Travis Tokar wrote, professor of supply chain management at the Christian University of Texas, in an email.

This dynamic makes it difficult to predict the precise impacts of products and prices, Tokar said.

For example, take a fast food chicken sandwich. While none of its ingredients can come directly from Canada or Mexico, the aluminum sheet used in its packaging could: increase costs that could be transmitted to consumers, Tokar said.

Almost everything that consumers buy is transported by trucks fed by refined oil products, which means that the impact of tariffs on Canadian crude oil “could be much broader than it seems at first sight,” Tokar said.

The United States obtains almost half of its foreign fuel from Canada, according to the Peterson Institute of International Economics.

“The costs eventually have to go through the supply chain” until the end of the consumer, said Mary Lovely, the main member of the Peterson Institute of International Economics.

The United States quoted $ 1.6 billion of goods with Canada and Mexico in 2024, representing more than 30% of the total trade in the United States, according to the Census Office data As of December.

It is expected that tariffs on Canada and Mexico cost the average American home $ 930 in 2026, according to a January analysis by the Urban-Brookings Fiscal Policy Center.

More personal finance:
Who benefits from Trump’s tax cuts?
Americans suffer from ‘Deca Shock’
How the United States has used rates throughout history

The taxes would cost the typical home $ 1,200 a year after also counting tariffs in China, according to a piie analysis. (The analysis only considered a 10% rate on Chinese imports that Trump imposed in February; on Tuesday he put another 10% rate instead).

That Piie evaluation on the impact of the consumer is “conservative,” said Lovely.

On the one hand, it does not take into account how national manufacturers would probably respond to less foreign competition, he said.

“These tariffs will increase the price of imported goods,” and national producers would probably increase their prices to “match” those of their foreign counterparts, said Alexander Field, professor of economics at the University of Santa Clara.

All who were told, the tariffs of Canada and Mexico could Add almost $ 6,000 to the cost of a caraccording to an estimate of the Benchmark Co. Investment Bank in February. That dynamic is A car insurance premiums are expected to.

“This will be enormously detrimental to the automotive industry,” said Douglas Irwin, economics professor at Dartmouth College and author of “Shock on trade: a history of US commercial policy.”

Brian Cornell, the CEO of Target, said the tariffs of Mexico It could force the company to increase the prices of fruits and vegetables. – including strawberries, avocados and bananas, in a few days.

Food prices in general would increase almost 2% in the short term, according to a Yale budget laboratory analysis from Canada, Mexico and China tariffs. Fresh products prices would increase almost 3%.

According to Piie, construction materials are also a great export of Canada, including more than 40% of American imports of wood products.

“If you are renewing this summer, you are not lucky,” said Lovely.

Large corporations may be in a position to absorb part of the tariff cost, instead of transmitting everything to consumers, said Lovely. But agricultural producers may not be in a position to do that, for example, since there are often “very low margins in the supply chain,” he said.

Even companies that absorb part of the cost, to avoid the immediate shock of the label for consumers, it means that they have less profits to invest in new equipment, hire workers or develop new products, which creates an “economic drag that is less visible but still significant,” Tokar said.

Consumers would also be affected by Foreign retaliation on the US trade. – Something to which officials in Mexico, Canada and China have already committed.

“You do not put this type of rates in place without waiting, and that is happening at this time,” Field said.

Canadian Prime Minister Justin Trudeau on Tuesday announced a 25% tax on imports from the USEffective immediately. Tariffs on other C $ 125 billion in goods from the United States will enter 21 days, he said.

Trump responded to the measures on Tuesday promising additional tariffs on Canada.

Ontario will impose a 25% tax on electricity that exports to 1.5 million homes in Minnesota, Michigan and New York in retaliation for Trump tariffs, Doug Ford, the leader of the province, he told the province. The Wall Street Journal.

China also announced retaliation tariffs of up to 15% aimed at American agriculture. American corn will face a 15%tax, while soybeans will be affected with a 10%duty, for example. Mexican President Claudia Sheinbaum plans to announce retaliation measures on Sunday.