“Tariff Man” has returned. US President Donald Trump signed executive orders on Saturday to impose 25 percent tariffs on Canada and Mexico, and a 10 percent tariff on China, declaring a national emergency due to illegal migration and drugs. The tariffs, which include a carve-out of a lower 10 percent levy on Canadian energy, carry major implications for the economy, diplomacy, and geopolitics. Our experts explain it all below.
Click to jump to an expert analysis:
Josh Lipsky: Beijing is breathing a sigh of relief
Jason Marczak: Can there be a short-term end game for Mexico?
Joseph Webster: These tariffs could upend energy sector business models
Barbara C. Matthews: This historic move means US trade treaties now come with a caveat
L. Daniel Mullaney: The tariffs genie is out of the bottle
Beijing is breathing a sigh of relief
Two things are true at the same time. These tariffs are more sweeping than any trade action we saw in the first Trump term and will impact over one trillion dollars in goods. The president has invoked the International Emergency Economic Powers Act (IEEPA) in an unprecedented way, levying major trade barriers all at once against the United States’ three largest trading partners. But it’s also true that China is likely breathing a sigh of relief.
Policymakers in Beijing have to be wondering how it happened that the United States tariffed its allies at 25 percent and its greatest economic challenger at 10 percent. Of course, the 10 percent comes on top of the already existing tariffs in several sectors, but it still means that most goods from Mexico and Canada will face a steeper fine than those from China. It’s much tamer than Trump’s campaign threat of 60 percent. (In fact, despite that threat, we predicted a China scale-down right after the election.)
Why the softening toward China? Inflation is one reason. Trump knows his moves on Canada and Mexico will have an impact, and there’s only so much price pressure US consumers are going to put up with. But leverage is another. Mexico and Canada depend far more on the United States than the United States depends on them. (Though there’s no doubt every economy in North America is going to bear some cost in these new trade wars.) China is a different story. China’s economy is less dependent on trade than Canada and Mexico—and only 15 percent of its exports go to the United States, compared to nearly 80 percent for Washington’s neighbors.
Now faced with 10 percent tariffs, Beijing has a trick up its sleeve: currency devaluation. Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates—and that’s one reason why Beijing’s rhetoric will be sharp but its economic retaliation will potentially be more muted.
—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.
Can there be a short-term end game for Mexico?
Mexican President Claudia Sheinbaum quickly responded to Trump’s announcement of 25 percent tariffs with an instruction for Economy Secretary Marcelo Ebrard to implement what she termed “Plan B” to include retaliatory tariff and non-tariff measures. If Mexico uses a similar playbook as to when Trump threatened tariffs in 2019, retaliatory tariffs will follow a red-state strategy. This could include pork from Iowa, dairy from Wisconsin, and industrial goods, including vehicles and electronics, particularly from Michigan and Ohio—all states that voted for Trump in 2024.
Sheinbaum has until Tuesday to see how to de-escalate and what carve-outs may be possible. Back in 2019, Trump threatened escalating tariffs that didn’t end up going into effect since Mexico committed to specific measures to curb immigration. What can Mexico agree to do this time around that would satisfy Trump? The fact sheet announcing the tariffs stated that the purpose is to “hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.” The Mexican authorities will be seeking to find some type of common understanding on new measures—like in 2019—that could be undertaken so the US president can claim a quick win.
Trump may be looking at the success of last Sunday’s tariff threats against Colombia—25 percent immediately with an escalation to 50 percent after one week—as proof that tariffs can deliver quick wins. Last week, Colombia acquiesced by the end of the day to Trump’s demands around acceptance of deportees. The Colombia tariff threats were the first test of this new administration as to whether governments would quickly capitulate. But Colombia is not Mexico or Canada.
—Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.
The tariffs on Mexico are counterproductive to Trump’s goal of curbing immigration
This evening’s announcement of 25 percent tariffs on Mexican imports—it is still unclear when they will take effect—is counterproductive to Trump’s goals of curbing immigration to the United States. The Trump administration has, oddly, made it cheaper for US manufacturers to source supplies from China than from Mexico. The tariffs will quickly erode the economic growth and improvements in supply-chain security that were direct results of the United States-Mexico-Canada Agreement (USMCA). China is stronger, and Mexico and the United States are weaker, because of this move.
The implementation of these tariffs will weaken the Mexican peso and the country’s economy. Depending on how long the tariffs remain in place, Mexican exports could fall by over 10 percent, and its gross domestic product (GDP) contraction could reach up to 4 percent. However, it is clear from the White House statement that the logic behind these tariffs on Mexico is not economic; they are being used as a tool to force flashy results on the security front. The Trump administration has gone as far as accusing Mexico of colluding with drug trafficking organizations. This marks the first time in decades that US-Mexico economic collaboration has been so explicitly dependent on security concerns. Most importantly, the signals it sends to the United States’ top trading partner ahead of the revision of Trump’s signature trade agreement—the USMCA—are far from positive. Finally, the timing of this announcement could not be worse, as Secretary of State Marco Rubio embarks on a trip to Central America to build goodwill among allies in the same neighborhood.
—María Fernanda Bozmoski is the director of impact and operations and lead for Central America at the Adrienne Arsht Latin America Center.
These tariffs could upend energy sector business models
Trump has issued an order imposing 25 percent additional tariffs on imports from Canada and Mexico and a 10 percent additional tariff on imports from China. According to the White House, “energy resources from Canada” will face a lower 10 percent tariff. If these tariffs are indeed implemented, the impact on energy markets will depend on the tariffs’ duration and the definition of “energy resource.”
Many US energy producers will never have imagined that supply chains in Mexico and especially Canada would ever face 25 percent tariffs. Consequently, some energy sector business models will break down if these tariffs are sustained.
It’s unclear which Canadian energy resources will qualify for the 10 percent tariff, though crude oil likely will. If the lower rate excludes imports of electricity, batteries, and minerals, this could significantly impact US electricity, battery, and defense technology markets. US capabilities in artificial intelligence and drones will be impacted, as well.
As David Goldwyn and I noted in our examination of USMCA energy trade, US refineries will now pay higher prices for Mexican and Canadian crude in the wake of tariffs. Texas refineries have historically taken in Mexican crude oil but will now be forced to pay higher input costs, harming their export competitiveness to other markets, especially Latin America. Midwestern refineries will also face higher prices, as they have few if any alternatives to Canadian crude oil and will pass along many costs to consumers. Finally, the US automotive sector could be severely impacted by these tariffs, due to deep supply chain interconnectedness with its North American neighbors. US development of autonomous vehicles will likely slow, perhaps considerably. The Midwest—especially Michigan—may be particularly squeezed by auto-related tariffs, as the mobility industry accounts for an estimated 27 percent of the Wolverine State’s gross state product.
—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.
This historic move means US trade treaties now come with a caveat
Trump’s decision to impose tariffs on US trade treaty partners accelerates centrifugal forces that have been pulling at the global economy for over a decade.
The White House announced that the tariffs are being imposed under the president’s authority from IEEPA rather than through established trade treaties. This move is historic.
IEEPA provides the president with broad powers to address any “unusual or extraordinary threat, which has its source in whole or substantial part outside the United States.” Centering the tariff action on national security should make the move World Trade Organization-legal under the General Agreement on Tariffs and Trade’s Article XXI national security exception. If the Trump administration invokes the Article XXI national security exception, the United States and Ukraine will be the only nations ever to do so.
Trump has now asserted that the United States faces a dire national emergency as China exploits the free trade area created by the USMCA. The tariff policy implies that the United States’ closest trading partners are turning a blind eye to the fentanyl trade.
This is not, however, the first time that the United States has imposed tariffs to address non-trade vulnerabilities. President Richard Nixon invoked the Trading with the Enemy Act to impose across-the-board 10 percent tariffs after the United States left the gold standard in the early 1970s. His goal at the time was to avoid a balance of payments crisis. Nor would the United States be the only nation to use tariff policy to promote domestic policy priorities. The European Union is creating import levies based on their estimated embedded carbon emissions under the Carbon Border Adjustment Mechanism.
The harsh truth is that international economic interdependencies also create real vulnerabilities. The world has been adjusting to those vulnerabilities since the COVID-19 pandemic. Today’s tariff decision being premised on a national emergency shifts US trade policy past the trade paradigm. It signals that Washington no longer considers international trade to be either benign or always beneficial.
The United States’ trading partners have had time to prepare for this action. Geoeconomic alliances are already shifting. Canada’s prime minister has turned inward, encouraging domestic provinces and territories to decrease their own internal trading barriers to offset the disruption in trade flows with the United States. The European Union this month concluded a new trade agreement with Mexico.
Today’s tariff decision tells the world that the United States’ trade treaty commitments come with a caveat: trading partners must support US policy priorities. The United States already exerts considerable economic influence through economic statecraft associated with US dollar sanctions policy. Tariff policy has now been enlisted into action as well.
—Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc.
Canada’s next prime minister must articulate how the country will navigate the Trump presidency
As Canada navigates a race to determine who will lead the Liberal Party and become the next prime minister, the 25 percent Trump tariffs could potentially devastate Canada’s economy, shrinking its GDP by 2.6 percent (approximately 78 billion Canadian dollars), according to the Canadian Chamber of Commerce. While these tariffs would also harm the US economy, reducing its GDP by 1.6 percent (roughly $467 billion), Canada is more vulnerable due to its greater reliance on trade with the United States.
As the Liberal Party chooses its next leader, it is crucial for the party to present a strong, unified front to the public, despite internal challenges. More importantly, the candidates must articulate how Canada will navigate a Trump presidency, and fighting against these tariffs could provide an opportunity to achieve unity on this issue. Prime Minister Justin Trudeau said the country is readying a “forceful and immediate response,” which signals a strong, unified Canadian front.
Canada and the United States have long maintained a strong and vital economic and diplomatic relationship. The next Canadian government has the opportunity to assert itself and push back against unfavorable policies like the 25 percent tariff. This week, Rubio met with Canadian Foreign Affairs Minister Mélanie Joly in Washington to discuss collaboration on shared global challenges, including securing borders and ensuring energy security. With the United States emphasizing energy policy, Canada’s role as a key ally in this sector will become increasingly significant and could be a way to fight back against the tariffs.
—Maite Gonzalez Latorre is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.
The tariffs genie is out of the bottle
With this action, the United States has crossed a Rubicon. Previous tariffs have generally been in response to the injurious impact of some set of unfair trade practices, import surges, or balance of payments issues. Using the emergency power to impose tariffs in response to unrelated issues like drugs and immigration sets the stage for further tariffs in response to any number of other non-trade priorities. The genie is out of the bottle.
—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East.
Further reading
Thu, Jan 30, 2025
Tariffs on Canada and Mexico could hurt Trump’s quest for US energy dominance
New Atlanticist By David L. Goldwyn, Joseph Webster
A trade war against Canada and Mexico could affect US energy prices and have significant geopolitical ramifications.
Thu, Jan 16, 2025
Trump has an advantage in upcoming USMCA trade talks. Here’s how his team can use it.
New Atlanticist By Sophia Busch
The Trump administration should take stock of the economic leverage—and dependencies—the United States has with Mexico and Canada ahead of 2026.
Fri, Jan 31, 2025
What to expect from Rubio’s trip to Central America and the Caribbean
New Atlanticist By Jason Marczak, María Fernanda Bozmoski
The US secretary of state lands in Panama on February 1 to kick off his first foreign trip. Here’s what to expect at every stop on migration, security, and more.
Image: A drone view shows trucks waiting in line at the Zaragoza-Ysleta border bridge to cross the border between Mexico and the United States, in Ciudad Juarez, Mexico January 31, 2025. REUTERS/Jose Luis Gonzalez.