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  February 3rd, 2025 | Written by

The 2025 Trade War Has Commenced 

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President Donald Trump has had a busy first two weeks in office. However, his most significant legacy to date in this 47th administration came this past Saturday when he imposed 25% tariffs on Canada and Mexico and 10% tariffs on China. 

Read also: Container Exchange’s Customer Advisory: Trump 2.0, Tariffs and Trade

Tariffs were a major platform issue for President Trump during his campaign, so few expected him not to follow through. The President implemented the tariffs under the International Emergency Economic Powers Act (IEEP), justifying them by arguing that illegal immigration and the smuggling of dangerous drugs into the country constitute an imminent threat to the nation. Yet, uncertainty around the practical effects of the tariffs continues to be hotly debated.

The three sectors most at risk are energy, autos, and agriculture. Canada pumped in 60% of US crude oil imports in 2023. Midwest refiners blend heavy Canadian crude with lighter domestic crude, but prices are almost certain to increase because Canadian heavy crude substitutes are in short supply.

For the vast majority of 2024, approximately 500,000 barrels per day of crude oil shipments from Mexico to the US were dispatched to US Gulf Coast refiners. It is now expected that some percentage will likely be diverted to Europe or Asia. US Atlantic Coast motor fuel markets are forecast to be hit the hardest, and regional natural gas spreads could also be affected, which would ultimately increase consumer prices.   

Car prices will also be closely monitored, as Mexico supplied roughly 43% of imported motor vehicle body parts to the US last year. Canada kicked in with over 25%, and most major auto manufacturers will be impacted with over 40% of Volkswagens sold in the US originating from Canada or Mexico. 

On the agricultural side, US imports from Mexico account for 23% of all agricultural imports, 63% of which are vegetable imports and 47% are nuts and fruit imports. Agriculture has short production times, so prices will react quickly. However, products with more complex supply chains could take time to incorporate the final cost of the tariff into their purchase price. 

China, Mexico, and Canada imported $536 billion, $455 billion, and $437 billion of goods to the US, respectively, in 2022. The Committee for a Responsible Federal Budget estimates the tariffs on all three countries could yield $1.3 trillion in revenue through 2035. A tax cut package is a near certainty under President Trump that is projected to cost north of $5 trillion over 10 years. The additional $1.3 trillion would offset anywhere between 15 and 20%, but that isn’t assuming tariff retaliations and the decline in US gross domestic product as a result. 

Meanwhile, the retaliations have begun. Over the weekend, Canada announced 25% levies on a host of US imports. Wine, bourbon, and beer, as well as juices, household appliances, and sports equipment, will face higher import duties. Mexican President Claudia Sheinbaum is implementing what she coined “Plan B,” a mix of tariff and non-tariff measures. China is bringing a formal complaint to the World Trade Organization, but no formal retaliatory tariffs have been announced yet.