Understanding the Tariff War That’s About to Begin

The stock market took a major hit today, plummeting nearly 650 points, marking the lowest point since December and erasing all gains since President Trump took office. The catalyst? A renewed commitment from Trump to implement tariffs on Canada, Mexico, and China. Unlike previous instances where he wavered, this time he is resolute, and investors are reacting with concern.

The Tariffs in Question

Starting tomorrow, a 25% tariff will take effect on goods from Canada and Mexico, while an additional 10% tariff on Chinese imports will bring the total to 20%. These tariffs are set to escalate trade tensions, with Mexico, Canada, and China vowing retaliatory measures that could harm American exporters.

Further amplifying economic uncertainty, President Trump announced that reciprocal tariffs would begin on April 2nd. This means that any country imposing tariffs on U.S. goods will face an equivalent tariff on their exports to the U.S. Additionally, all agricultural goods entering the United States will be subjected to new tariffs, potentially disrupting supply chains and raising consumer prices.

Who Pays for the Tariffs?

A common misconception is that foreign governments bear the cost of tariffs. In reality, it’s the U.S. consumer who ultimately pays. Tariffs act as a tax on imported goods, making them more expensive for businesses and consumers alike. President Trump acknowledged that there may be short-term disruptions, but insists they are necessary.

Key Facts on How Tariffs Affect the U.S. Economy

Fact 1: The U.S. Depends Heavily on Imports from Canada, Mexico, and China

According to U.S. government data, Canada, Mexico, and China are the largest suppliers of imported goods. Here’s a breakdown:

• Food: Canada and Mexico supply the U.S. with a significant portion of its food supply. Mexico alone accounts for 31% of U.S. fruit, vegetables, and alcoholic beverages. Avocados and tomatoes? Mostly from Mexico. Meat and grains? Canada is a key supplier.
• Oil: From June to November 2024, the U.S. imported over 140 million barrels of crude oil per month from Canada—almost four times the amount imported from all OPEC+ countries combined. Higher tariffs could drive up gasoline prices at the pump.
• Cars & Trucks: Canada and Mexico supply a large number of vehicles to the U.S. A 25% tariff would not only increase the price of new cars but could also drive up demand—and prices—for used vehicles.

Fact 2: Higher Tariffs Mean Higher Prices for Everyday Goods

Plastics, furniture, pharmaceuticals, and lumber from Canada, as well as electronics and machinery from Mexico, will be subject to these tariffs. The impact goes beyond just imported products—many components that make up American-made goods come from abroad. A simple electronic part from Mexico, used in assembling gaming consoles in the U.S., will now cost more. That cost will be passed down to consumers.

Fact 3: ‘Made in America’ Products Are Not Fully Immune

Even if a product has a ‘Made in America’ label, that doesn’t mean all its parts are domestically produced. According to the Federal Trade Commission, a product can carry the label as long as it is “all or virtually all” made in the U.S. Many of these products still rely on imported components, which will now be subject to higher costs due to tariffs.

Fact 4: The Global Supply Chain Can’t Be Reversed Overnight

A century ago, tariffs were a significant source of government revenue. However, in today’s interconnected economy, supply chains are global. U.S. labor costs are higher than in other countries, making it unrealistic for all manufacturing to be shifted back to the U.S. Instead, many companies may choose to pay the tariff and pass the added cost onto consumers.

Fact 5: Economic Precedent and the Risk of Recession

History and economic studies have shown that prolonged tariff wars often lead to economic downturns. Over the past 70 years, tariffs have rarely produced the intended economic benefits. Instead, they tend to reduce consumer spending power, slow down business investments, and increase inflationary pressure.

The Uncertain Road Ahead

Will this round of tariffs create a different outcome than past trade wars? That remains to be seen. What is certain is that businesses, investors, and consumers will all feel the impact. With retaliation from key trade partners expected, American exporters are bracing for losses, and everyday consumers should prepare for rising costs on essential goods. Whether this strategy results in long-term economic benefits or significant damage will be revealed in the months ahead.