Mexico and Canada are bracing the impact of ‘unjust’ import duties

US President Donald Trump was inexorable on Monday. There was “no more room” for Canada and Mexico to avert onto 25 percent levels on their exports to the United States. After those rates for goods from the two largest trading partners in the United States were previously postponed by a month, they will enter this Tuesday, he explained in Washington.

“They will get a levy,” said Trump in the White House, referring to the two neighboring countries, with which the US has been running free trade for more than thirty years. In 2023, more than 1,900 billion dollars were involved with their mutual trade. Trump puts that decades -long free trade with his measure aside, because according to him, neighboring countries do not do enough to prevent the influx of migrants and illegal drugs, especially Fentanyl. The taxes, he said, “are all ready, they will go in tomorrow.”

Stock prices fell sharply in response to the statements. The S&P 500 Index closed 1.8 percent lower in New York; Asian scholarships also returned. Until now, investors had remained calm among the threats, no matter how drastic for the economies of the North American free trade partners. They took into account that it was possible a negotiating tactics, as a pass in the redesignment of the North American free trade agreement USMCA.

That hope disappeared on Monday at the end of the day – although much remained unclear about the elaboration of the taxes. Mexican President Claudia Sheinbaum said on her daily press talk that she had to see if the import duties would indeed come. But she also emphasized that her government was prepared. “We have a plan B, C, D,” she said, without going further into details.

The Canadian Prime Minister Justin Trudeau later in the day called “completely unjustified” and contrary to the USMCA treaty, the successor of the North American free trade agreement NAFTA, which Trump signed with Canada and Mexico in 2018. He confirmed that Canada will set retaliation taxes.

What do the taxes mean for both neighboring countries?

Mexico: Impact on agricultural and automotive sector

The interests are huge for Mexico. In 2023, the country passed Canada as the largest trading partner in the US; In 2024, the total commercial value between the two countries was nearly $ 840 billion. In addition, the Mexican export to the US takes care of around 506 billion dollars: a trade surplus that Trump wants to from. He hopes that American manufacturers who are active in Mexico will leave the country and settle again within the American borders. An unlikely scenario, given the much lower wage costs in Mexico.

The impact of the new rates is feared in particular in the Mexican agricultural sector and the car industry. 63 percent of the vegetables that import the US come from Mexico. For American consumers, this means that products such as avocados and peppers are probably more expensive. The most important export product from Mexico to the US, however, are cars and car parts, good for $ 157 billion in 2023. Nissan, Stellantis, General Motors: between 20 and 30 percent of the vehicles they sell in the US are almost entirely made in Mexico.

A month ago, Sheinbaum had reached an agreement after a telephone conversation with Trump to postpone the import duties. She knew that the American president always uses the rates to put pressure on trading partners and to get commitments. And so she promised Trump results. Mexico would do even more in the field of illegal migration and the smuggling of Fentanyl.

Ten thousand soldiers were sent to the border to ensure that fewer migrants would venture to the US. Under the previous President Joe Biden, much fewer people came to the US and Mexico had been busy breaking up migrant caravans who moved north. But now they went even further. Reception centers were opened in several border cities to compensate for Mexican and non-Mexican deported migrants. There was even more intensive patrol on the border. Partly due to the actions on the Mexican side of the border, the number of illegal crossings is currently at the lowest point in decades.

The drug cartels and their destructive fentanyl trade were also tackled. In Sinaloa, the home of the Sinaloakartel, thousands of soldiers are present who focus on destroying drug labs and the arrest of cartel members. Even before Trump’s appointment, record quantities Fentanyl were seized. At the same time, the approach to this production and smuggling turns out to be a major challenge: a few kilos of fentanyl is enough to provide tens of thousands of people with a dose and in addition, most of the smugglers to the US are American citizen. For them, crossing the border is a small effort at one of the many border crossings.

Last week 29 very high -ranking members of different drug cartels were delivered to the US. In the meantime, the CIA has staged the number of drone flights in Mexico, in its own words intended to collect information about organized crime. Mexico has also done what it was possible at the diplomatic level in recent weeks. Generals, ministers, they were all in Washington to convince the US that Mexico is achieving results and that import duties would therefore not be necessary.

And even against China, an important trading partner of Mexico, his steps have taken his steps to satisfy Trump. On the import of Chinese clothing, Mexico levies have been introduced of 35 percent, and on the products that retailers such as Shein and Temu transport to Mexico, another 19 percent must be paid.

And yet from midnight taxes of 25 percent have discussed Mexican products. Mexico could respond, for example by introducing taxes on products from Republican States: think of Kentucky-Bourbon or pork. The government can also choose to let the Mexican peso weaken against the US dollar, which means that the rates are felt less hard.

It would be short -term reactions. Economists agree: in the long term, a trade war can cause bankruptcies, factory closures, growing unemployment and a recession. The economic uncertainty that the (threat of) import duties entailed previously ensured that the Mexican central bank reduced the growth expectations for 2025 from 1.2 percent to 0.6 percent. If the taxes do not quickly leave the table, the economic consequences for Mexico will be enormous.

Canada wants retaliation measures

In Canada, Trumps coupling of import tariffs on the smuggling of Fentanyl is seen as out of place: less than 1 percent of illegal drugs comes in from the northern neighboring country. Nevertheless, in December Prime Minister Justin Trudeau announced a package of measures worth 1.30 billion Canadian dollars (around 864 million euros) to strengthen the surveillance of the thousands of kilometers long. Among other things, extra helicopters are used. Canada has also appointed a ‘fentanylsaar’ at Washington’s request.

The Canadian government announced that there is “no daylight” between its position with regard to Fentanyl and that of the White House, and being willing to increase the fight against it. However, intensive attempts to convince the White House that Canada takes that fight seriously, should not help. In Canada, there is a realization that Trump cannot be reasonable and that a period of almost a century of increasingly intensive economic cooperation with the United States is coming to an end.

For Canada, that is a potential economic disaster, which is expected to lead to a recession. The country is highly dependent on trade with the US; It delivers 78 percent of his exports to the Zuiderburen. In 2023 it was about $ 418 billion. However, the neighboring country is also important for the Americans; It is the largest buyer of American imports, worth 354 billion in 2023. It is also the largest foreign supplier of energy to the US, including oil.

Moreover, the trade relationship between the US and Canada is relatively balanced: if energy is not taken into account, the US even have a slight surplus on the mutual trade balance. Canadians therefore see Trump’s unexpected attack on their country as a brother recommend.

Economists warn that the taxes on Canadian import will also harm the US economy. They are paid by American customers, which they are expected to pass on to their customers. Prices will therefore rise – also on the gas pump. In an obvious attempt to limit damage, Trump makes an exception for Canadian energy: an import tax of 10 percent applies to this.

In addition, production chains in both countries are highly integrated, especially in the crucial car industry. Parts, semi -finished products and end products often cross the border several times. Observers warn that the car industry will come to a halt in the short term as a result of the substantial levies.

Trudeau confirmed on Monday that Canada will pay Trump’s rates, according to a previously announced plan. From Tuesday, the country will put taxes of 25 percent on 155 billion Canadian dollars (102 billion euros) in American goods. Levings at 30 billion of this go directly into, rates on the remaining 125 billion in products after 21 days.

“Our rates remain in force until the American trade measure is withdrawn,” said Trudeau in a statement. His government is also in discussions with provinces about “different non-tariff measures,” Trudeau said.

For example, there is talk of an option to limit energy deliveries to the US. Doug Ford, Prime Minister of the Ontario province, who supplies electricity to several American states, threatened to eliminate the light on Monday. “If they want to destroy Ontario, I will do everything, including squeezing their energy, with a smile on my face,” he said.

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