Key Takeaways
President Trump has imposed tariffs on Canada and Mexico, alleging both countries are not doing enough to stem the flow of deadly fentanyl and pointing to significant trade imbalances.
The tariffs are 25% for Canada and Mexico, with energy exports from Canada being assessed a 10% tariff.
Canada immediately responded with tariffs to roll out over the next 21 days. Mexico intends to respond on March 9, while the premier of Ontario threatened to cut off electricity exports to the United States.
President Trump also added a 10% tariff on Chinese goods, doubling the tariff to 20%, and China has responded with tariffs on food and other goods from the United States.
President Trump believes that tariffs will move some companies to locate production facilities in the United States, providing investment and jobs here, as has recently been seen with Taiwan semiconductor producer TSMC and Honda with a new auto facility in Indiana.
On March 4, the United States implemented 25% tariffs on imports from two of its largest trading partners, Canada and Mexico, prompting Canada to announce equal tariffs on U.S. goods, and Mexico to respond shortly. The tariffs include a 10% duty on Canadian energy products. The United States also doubled a 10% tariff on Chinese imports to 20%, with the Chinese government responding with additional tariffs of 15% on chicken, wheat, corn and cotton and a new 10% tariff on pork, beef, sorghum, soybeans, aquatic products, fruits, vegetables and dairy products. China also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen. China’s new tariffs will take effect starting March 10.
Canada’s Response
Canadian Prime Minister Justin Trudeau is implementing tariffs on more than $100 billion of American goods over the course of 21 days. Canada is imposing 25% tariffs on $155 billion Canadian ($107 billion U.S.) worth of American goods, starting with tariffs on $30 billion Canadian ($21 billion U.S.) worth of goods immediately and on the remaining amount on American products in three weeks. Canadian tariffs are to remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, Canada may pursue several non-tariff measures, which they are discussing with provinces and territories.
Ontario Premier Doug Ford is threatening to cut off electricity exports to the United States. Canada is the largest electricity exporter to the United States, providing predominantly hydroelectric power to New York and New England. The United States imported approximately 33 terawatt-hours of electricity from Canada in 2023. Imports fluctuated, peaking at more than 68 terawatt-hours in 2015. Canada accounts for approximately 90 percent of annual electricity imports in the United States. If Ontario follows through on its threat, U.S. utilities could be forced to replace that supply with natural gas, potentially increasing electricity prices, as there is limited pipeline capacity in the areas for moving additional natural gas. That may ease as President Trump wants to jump-start the Constitution pipeline, which was stopped by New York.
The Federal Energy Regulatory Commission (FERC) is being asked to clarify whether Independent System Operators are to collect and remit the tariffs, which could add tens of millions in costs to ratepayers. Grid operators believe electricity, an intangible commodity, should not be subject to tariffs like physical goods. According to the New England grid operator, an estimate using import data from the last five years indicates a 10 percent to 25 percent tariff on Canadian electricity imports could amount to import duties of between $66 million and $165 million annually. The New England grid operator asked FERC to issue an order by the end of March, with an effective date of March 1 as market participants selling Canadian electricity into the ISO-administered market will be assessed the cost of such import duties, which the ISO will collect based on the entity’s external transaction sales into New England.
Mexico’s Response
Mexico is planning to respond to the new tariffs imposed by the United States with its own retaliatory tariffs on U.S. goods, including tariff and non-tariff actions, to be announced Sunday, March 9, according to Mexico President Claudia Sheinbaum.
The Canada and Mexico tariffs were supposed to begin in February, but Trump agreed to a 30-day suspension to negotiate with the two large U.S. trading partners. The tariffs are to address drug trafficking and illegal immigration, which both countries believe they have made progress addressing. Still, President Trump questions their progress and is also concerned about the U.S. trade imbalance with those countries. Fentanyl has killed 100,000 Americans per year.
President Trump wants the tariffs to motivate foreign companies to open factories in the United States. Recently, Trump announced that Taiwan Semiconductor Manufacturing Company, a significant computer chipmaker, would invest $100 billion in domestic production. The company had previously pledged to invest in three factories in Arizona, one of which began production in late 2024. Honda has also decided to produce its next-generation Civic hybrid in Indiana instead of Mexico to avoid potential tariffs on one of its top-selling car models.
In the last month, President Trump put 25% tariffs on steel and aluminum imports and indicated tariffs on cars, semiconductors, and pharmaceuticals could go into effect as soon as next month. Trump ordered a trade review, with a deadline of April 1, and announced that universal reciprocal tariffs will go into effect on April 2.
Conclusion
President Trump has implemented tariffs on imports from Canada and Mexico of 25%, except for energy products from Canada, which have a 10% tariff, and added another 10% from goods coming from China to double that tariff to 20%. Both China and Canada have retaliated with tariffs of their own and Mexico intends to announce the details of its tariffs on Sunday, March 9. If the U.S. tariffs persist, Canada may add additional actions and discuss those with its provinces and territories. For example, Ontario Premier Doug Ford is threatening to cut off electricity exports to the United States. President Trump had agreed to a 30-day suspension on tariffs with Canada and Mexico to negotiate with them, but wants more progress on cleaning up the illegal drug trade at the borders and to deal with the U.S. trade imbalance with those 2 countries. Time and future negotiations will determine the resolution of these actions and reactions. Still, President Trump’s different energy treatment in his trade negotiations shows he continues to focus on it as a fundamental part of reviving the nation’s economy.
