2025 United States–Canada–Mexico trade war

United States–Canada–Mexico trade war
Date	February 1, 2025 (2025-02-01) – present (1 day)
Location	United States Canada Mexico
Goals	End illegal immigration to the United States and the flow of fentanyl across the U.S.–Canada and U.S.–Mexico borders
Status	Ongoing U.S. tariffs on Canada and Mexico set to begin on February 4 Canadian retaliatory tariffs to be imposed over three weeks Mexico says it will pursue both tariff and non-tariff retaliation against the U.S.
Parties
United States  Canada  Mexico
Lead figures
Donald Trump Justin Trudeau Claudia Sheinbaum

A trade war between the United States, Canada, and Mexico began on February 1, 2025, when U.S. president Donald Trump signed orders imposing near-universal tariffs on goods from the two countries to take effect on February 4. The order imposed 25 percent tariffs on all exports from Mexico and all exports from Canada except for oil and energy, which will be taxed only 10 percent. Trump claimed that the goal of the tariffs was to stop both illegal immigration to the U.S. and the supply of fentanyl across its borders with Canada and with Mexico, and to reduce the U.S.'s trade deficit.

In response, Canadian prime minister Justin Trudeau said Canada would immediately respond with 25 percent tariffs on CA$30 billion (US$20.6 billion) of American exports, which would expand to CA$155 billion (US$106 billion) within three weeks. Mexican president Claudia Sheinbaum said Mexico would enact both tariffs and non-tariff economic retaliation against the United States.

Both Canada and Mexico have said that Trump's tariffs violate the United States–Mexico–Canada free trade agreement, which was also signed by Trump in 2020. Economists have said that the tariffs are likely to disrupt trade between the three countries significantly, upend supply chains across North America, and increase consumer prices across the U.S., Mexico, and Canada.

The United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA) in 1994, a free trade agreement that eliminated almost all tariffs on trade across the three countries.^[1] NAFTA has been described as a source of political division.^[2] In the United States, it led to offshoring as U.S. companies relocated their businesses to Mexico in search of cheaper labor, harming American factory towns and workers. The backlash to free trade allowed candidates like Donald Trump to rise to prominence in U.S. politics, although many parts of the U.S. also benefitted from the increased trade and economic activity brought by NAFTA.^[3] In 2020, during Trump's first term as U.S. president, NAFTA was replaced by the United States–Mexico–Canada Agreement (USMCA), largely because of Trump's disagreements with NAFTA.^[1][4] Under the USMCA, most products across the U.S., Canada, and Mexico are not subject to any tariffs.^[5] However, the agreement allows for certain tariffs to be imposed for matters of national security.^[6] The USMCA also sets the "rules of origin" that define a product's place of origin for the purposes of tariffs.^[1] In 2024, Canada and Mexico were two of the United States's three largest trading partners, alongside China.^[5]

Even before NAFTA first came into effect, the U.S. and Canadian economies, especially in the car-manufacturing sector, were highly integrated.^[1] In the first nine months of 2024, Canadian government data estimated that CA$800 billion (US$550 billion) of goods crossed the Canada–U.S. border.^[6] As of November 2024, the U.S. government estimated the United States's trade deficit with Canada to be US$55 billion.^[6] This trade deficit is largely driven by American demand for Canadian oil; when oil exports are excluded, the U.S. has a trade surplus with Canada.^[6] Roughly 60 percent of the oil imported by the United States is sourced from Canada.^[7]

The economies of the United States and Mexico are highly intertwined.^[3] In 2024, roughly US$800 billion of goods were transported across the Mexico–U.S. border, and over US$1 billion in commerce between the two countries takes place every day.^[3] In 2023, U.S. exports to Mexico totaled US$322 billion, while the U.S. imported over US$475 billion of Mexican products, according to data from the U.S. Census Bureau.^[8] Roughly 70 percent of Mexico's natural gas consumption comes from the United States, and the U.S. imports about 700,000 barrels of crude oil from Mexico each day.^[3] Food production between the two countries is also closely integrated; the U.S. sources roughly half of its fresh fruits and vegetables from Mexico, and Mexico is the top market for U.S. agricultural exports.^[3] Both countries have been accused of violating an agreement signed alongside the USMCA to limit steel exports between each other. Some Americans, including Trump, have said that Mexico has exceeded the level of exports allowed under the agreement, while a Mexican steel organization has reported that the level of U.S. steel exports also violates the agreement.^[3]

During his first term, Trump threatened tariffs on Mexico if it did not end illegal immigration to the U.S. across the Mexico–U.S. border, and repeatedly threatened to withdraw from NAFTA. However, he ultimately did not impose the tariffs and worked to renegotiate NAFTA to the USMCA.^[3] In 2018 and 2019, Trump placed major tariffs on China, totaling about US$80 billion of tariffs on about US$380 billion of products, which were largely kept in place by the subsequent administration of Joe Biden.^[4] The U.S. government has been concerned over China–Mexico trade, particularly in the automotive sector, because it fears that Chinese companies can use Mexico to export to the U.S., circumventing tariffs on China and taking advantage of the USMCA.^[3]

In January 2025, Canadian prime minister Justin Trudeau declared his intention to resign as Liberal Party leader and prime minister once a new leader is chosen in March, making him a lame duck.^[9] Doug Ford, the premier of Ontario and head of the Council of the Federation, called a snap provincial election to be held on February 27, saying that he wanted his Progressive Conservative Party to have a stronger mandate to oppose Trump's impending tariffs on Canada.^[6] On January 31, Trudeau said on social media that Canada was "ready with a forceful and immediate response" if the U.S. moved ahead with its decision to impose tariffs on Canadian exports.^[7]

During his inaugural address on January 20, 2025, at the beginning of his second term, Trump said he would enact steep tariffs on other countries. He said that "Instead of taxing our citizens to enrich other countries," the United States would "tariff and tax foreign countries to enrich our citizens."^[2] Trump said that both Canada and Mexico are allowing "mass numbers of people to come in and fentanyl to come in" to the United States across their borders,^[7] while also saying that both countries were unfairly profiting from the United States's trade deficits.^[4] He has criticized the U.S.'s trade deficit with Canada while citing inaccurate figures that claim it to be as much as US$200 billion.^[6] Even after Trump declared his intent to impose imminent tariffs on Canada and Mexico, U.S. companies did not make any concerted effort to import large amounts of goods to the U.S. prior to their enactment.^[10]

On February 1, 2025, Trump signed three executive orders imposing 25 percent tariffs on all goods from Mexico and Canada^[4] except for Canadian oil and energy exports, which were imposed a 10 percent tariff.^[5][7] Mexican energy exports will receive the full 25 percent tariff.^[11] The orders were issued under the International Emergency Economic Powers Act (IEEPA) and are set to take effect at 12:01 a.m. Eastern Standard Time on February 4.^[7] Trump also ordered 10 percent tariffs on China, which would be imposed in addition to the existing tariffs of up to 25 percent on many Chinese goods.^[5] The orders included a clause allowing the U.S. to increase its tariffs if the countries respond with their own tariffs or other retaliatory measures.^[7]

Trump used the IEEPA to circumvent the USMCA's restriction on tariffs in cases other than national emergencies.^[6] He cited both the influx of illegal immigrants crossing the U.S.'s borders with both Mexico and Canada, as well as the opioid epidemic in the U.S. fueled by fentanyl from China reaching the United States through Mexico and Canada.^[4][5][7] In the executive order, he said that Canada has played a "central role" in allowing fentanyl to enter the U.S. and that it has failed to "devote sufficient attention and resources or meaningfully co-ordinate" with the U.S. to "stem the tide of illicit drugs," despite the vast majority of fentanyl in the United States coming from the southern border with Mexico.^[4][6] The tariffs are also aimed at incentivizing manufacturers to hire Americans to make their products in the United States instead of importing them from other countries.^[5]

In a post on Truth Social, Trump said that "We need to protect Americans, and it is my duty as president to ensure the safety of all. I made a promise on my campaign to stop the flood of illegal aliens and drugs from pouring across our borders, and Americans overwhelmingly voted in favor of it." While he acknowledged that the tariffs could cause "temporary short-term disruption," he said that they needed to be imposed. Trump also claimed that "Tariffs don't cause inflation," but rather that "They cause success."^[4] He also criticized the U.S. trade deficits with all three countries.^[5]

Hours after Trump imposed the tariffs on February 1, Trudeau said that Canada would retaliate with tariffs against the United States.^[1][6] He said that Canada would impose 25 percent tariffs on CA$30 billion (US$20.6 billion) of American exports immediately after the U.S. tariffs take effect, and impose 25 percent tariffs on a further CA$125 billion (US$86 billion) worth of goods in the next three weeks.^[4][9] Trudeau said that the delay would allow Canadian businesses to prepare.^[9] He added that Canada was considering more retaliatory trade action in addition to tariffs to force Trump to end the trade war, including export restrictions on critical minerals and energy products or a block on American companies bidding on government contracts.^[6]

Trudeau said that American liquor, vegetables, clothing, shoes and perfume will be among the first to face retaliatory tariffs, and that tariffs on consumer goods such as household appliances, furniture, and sports equipment would also be imposed.^[6] Canada's retaliation is aimed particularly at "red states" of the U.S. led by Trump's Republican Party.^[9] In his speech, Trudeau presented data showing that only about 1 percent of fentanyl imports and illegal border crossings to the United States come from its border with Canada.^[9] He called the U.S.–Canada relationship "the most successful partnership the world has ever seen" across all domains^[9] and accused Trump's tariffs of violating the USMCA.^[4] He also said that the tariffs endanger American consumers and industries,^[4] and called on Canadians to "choose Canadian products and services rather than American ones" wherever possible.^[4][6]

Canada's premiers also responded. Ontario premier Ford said that Canada has "no choice but to hit back and hit back hard"^[6] and ordered the LCBO to remove all sales of American alcohol.^[12] Alberta premier Danielle Smith, who had until then been opposed to aggressive trade action against the U.S., said Canada needed to respond to Trump's "mutually destructive policy" and that she supports "the strategic use of Canadian import tariffs on U.S. goods that are more easily purchased from Canada and non-U.S. suppliers."^[6] In Nova Scotia, premier Tim Houston said the province will double highway tolls for U.S. commercial vehicles and direct the Nova Scotia Liquor Corporation to stop selling all U.S. liquor by February 4.^[6] Premier François Legault of Quebec said he ordered Treasury Board president Sonia LeBel to "review all procurement contracts involving American suppliers" and penalize any that do business with Quebec's government.^[13] Northwest Territories premier R.J. Simpson also announced that his government would review their procurement policies to eliminate purchases from US companies where possible.^[14]

Pierre Poilievre, the leader of the opposition Conservative Party, condemned what he called "massive, unjust and unjustified tariffs." He urged that the government end the current prorogation of parliament to retaliate with measures including dollar-for-dollar tariffs on U.S. goods that he said would raise money to help "affected workers and businesses." He also repeated his demand for a "massive" tax cut and other effort to bolster the economy.^[6]

Mexican president Claudia Sheinbaum said that Mexico would implement both tariff and non-tariff retaliatory measures against the United States.^[4] She said the retaliation was "in defense of Mexico's interests".^[8] While Sheinbaum did not specify which U.S. goods Mexico's retaliation would target, media reports claimed that Mexico had been preparing possible retaliatory tariffs ranging from 5 percent to 20 percent on pork, cheese, produce, steel, and aluminum, and that the automotive industry would initially be exempt.^[8] Marcelo Ebrard, the federal secretary of economy, called Trump's tariffs a "flagrant violation" of the USMCA.^[15] Sheinbaum also responded to Trump's claim that the Mexican government has an alliance with the Mexican drug cartels, calling it "slander".^[4] At an event on February 1, she said Mexico would keep a "cool head" in proceeding with its retaliations and she proposed establishing a taskforce with the U.S. to address Trump's issues with Mexico, and said that "problems are not resolved by imposing tariffs".^[4]

The trade war is expected to significantly disrupt trade between the U.S., Mexico, and Canada, and upend supply chains across North America.^[5][9] Many economists have expressed skepticism over the effectiveness of Trump's strategy in imposing tariffs,^[5] and many have said that increased tariffs would raise prices on consumer goods in the U.S. and worsen the country's cost-of-living crisis.^[4] The Budget Lab at Yale University estimated that the tariffs will lead to a loss of about US$12,000 in purchasing power for the typical American household.^[5] While some companies will opt to bear the cost of the tariff, others are likely to raise prices on consumer products to offset lost revenue or attempt to negotiate lower prices for their products.^[7]

Because the U.S. does not produce enough oil to satisfy its demand, tariffs on Canadian oil and energy are likely to lead to an increased price of oil across the United States.^[3][6][16] This is especially true in the Midwest, a region heavily reliant on oil imported from Alberta.^[6][7] The Canadian government had previously said that U.S. gas prices could increase by as much as US$0.75 per gallon overnight if tariffs were imposed.^[6] Tariffs could also increase the cost of electricity in some U.S. states, especially those that rely on Canadian provinces like Ontario, Quebec, and British Columbia for energy.^[6] Outside North America, tariffs on energy imports will give European and Asian oil refineries a competitive advantage against their rivals.^[11]

The tariffs could also lead to price increases in a wide variety of U.S. imports from Mexico and Canada, including fruits, vegetables, beer, liquor, and electronics from Mexico and potatoes, grains, lumber, and steel from Canada.^[6][16] Price increases would compound with high inflation in the U.S., especially in grocery prices.^[16] The cost of Canadian lumber, which is used by many homebuilders in the U.S., would also likely increase.^[6] The tariffs would also cause risk to the U.S. farming and fishing industries.^[7]

The tariffs pose a risk of "severe recession" in Mexico if they are maintained.^[4] A year-long 25 percent tariff could cause Mexican exports to fall by around 12 percent, ultimately leading to a 4 percent decline in the country's gross domestic product in 2025.^[8] The American Chamber of Commerce in Mexico, the group representing U.S. companies in the country, said tariffs would harm both economies and "fail to address the real challenges of security, migration and drug trafficking."^[4] The Mexican automobile industry is likely to be most susceptible to upheaval from the tariffs, alongside the electric equipment sector.^[5][7]

Canada, which has a highly trade-dependent economy, will also likely suffer, experiencing harmed economic growth as well as increased prices for both businesses and consumers in the country.^[1] Quebec premier Legault said that the U.S. tariffs could cause the loss of as many as 100,000 Canadian jobs.^[13] Prices could also increase in Canada for even domestically-produced products, especially if the tariffs cause economic difficulties for smaller businesses.^[1] Canadian companies being unable to sell their products to Americans at the same volume would also cause some of them to cut workers, scale back, or even shut down entirely.^[6] Canada's mineral processing industry will likely be significantly harmed by the tariffs.^[7]