Supply Lines: Canada and Mexico Counter US Tariffs

June 2025

Canada and Mexico have vowed to retaliate against US tariffs imposed by President Donald Trump, marking a significant escalation in the ongoing trade war.

Canadian Tariffs

Canadian Prime Minister Justin Trudeau announced 25% tariffs on C$155 billion ($106 billion) worth of US goods, including appliances, food, and beverages. Trudeau urged Canadians to support domestic businesses and avoid US vacations.

Mexican Retaliation

Mexican President Claudia Sheinbaum pledged retaliatory tariffs without specifying the targeted products. She called for cooperation with the US on security and fentanyl addiction. The imposition of US tariffs could lead to a severe recession in Mexico, according to economic experts.

China's Response

China has denounced Trump's 10% levy on Chinese exports but refrained from announcing immediate countermeasures. The Commerce Ministry threatened to file proceedings with the World Trade Organization.

US Tariff Justification

The US tariffs are justified by concerns about undocumented migration and drug trafficking, according to the Trump administration. However, critics argue that the tariffs disproportionately harm American consumers and businesses.

Sweeping Measures

The US tariffs eliminate de minimis exemptions for small parcels from Canada, Mexico, and China, potentially impacting e-commerce. The tariffs also extend to energy imports from Canada, including a 10% tariff on refined gasoline and diesel.

Auto Industry Concerns

Automakers have expressed alarm over the tariffs, citing the integrated nature of US-Mexico manufacturing. They argue that the tariffs will increase costs for consumers and harm American jobs.

Uncertainty and Market Impact

The tariffs have created uncertainty in the markets. The S&P 500 Index has remained flat, while equity benchmarks in Canada and Mexico have declined. Automakers with exposure to Mexico and Canada may see significant stock swings.

Political Reactions

Democrats have condemned the tariffs, citing their detrimental impact on American families. Republicans have largely supported Trump's trade policies, with some exceptions.

Trump's Emergency Authority

The tariffs are based on the International Emergency Economic Powers Act, expanding Trump's previous declaration under the National Emergencies Act. This move further tests the limits of executive authority.

Potential for Escalation

The retaliation clause in the US orders could fuel a spiraling trade war. The tariffs can be removed if Homeland Security Secretary Kristi Noem determines that Canada and Mexico have addressed concerns over migration and drugs. However, it remains unclear if such steps will be sufficient to appease the Trump administration.