President Donald Trump has introduced tariffs on Canada and Mexico, a move that threatens to escalate into a trade conflict between the United States and its neighboring countries. Goods entering the U.S. from these nations will now face a 25% tax. In response, Canada has announced retaliatory tariffs, and Mexico has stated it will also implement countermeasures.
The three countries have closely connected economies, with supply chains that facilitate the movement of around $2 billion (£1.6 billion) worth of manufactured goods across their borders each day.
Trump has defended the tariffs, saying they are necessary to safeguard American industries. However, many economists caution that these duties could drive up prices for U.S. consumers. This is because the tax is paid by American importers, who may either pass on the increased costs to customers or reduce imports, which would result in a decrease in available products.
Possible Price Increases on Consumer Goods
Automobiles
The cost of cars is expected to rise, with TD Economics estimating an increase of approximately $3,000 per vehicle.
Car manufacturing involves components crossing the U.S., Canadian, and Mexican borders multiple times before final assembly. Several major automakers, including Audi, BMW, Ford, General Motors, and Honda, rely on this cross-border trade.
With the introduction of tariffs, higher costs incurred on imported parts are likely to be passed on to customers.
“Suffice it to say that disrupting these trends through tariffs… would come with significant costs,” noted Andrew Foran, an economist at TD Economics.
He emphasized that “uninterrupted free trade” in the automotive industry had existed for decades, leading to lower prices for consumers.
Alcoholic Beverages: Beer, Whisky, and Tequila
Popular Mexican beer brands such as Modelo and Corona could become more expensive for U.S. consumers if American importers choose to pass on the additional tax costs. However, companies might also decide to reduce the amount they import instead of raising prices.
Modelo, which became the best-selling beer in the U.S. in 2023, continues to hold the top position.
Spirits face a more complex situation. Since the 1990s, the industry has largely operated without tariffs. Prior to the new tariffs, industry organizations from the U.S., Canada, and Mexico issued a joint statement expressing their “deep concern.”
They pointed out that certain spirits, including Bourbon, Tennessee whiskey, tequila, and Canadian whisky, are “recognized as distinctive products and can only be produced in their designated countries.”
Because production cannot simply be relocated, these beverages may face supply shortages, potentially leading to price hikes. The industry groups also noted that many companies own various spirit brands across all three countries.
Housing Costs
Canada supplies approximately one-third of the softwood lumber used in the U.S. annually. This essential building material will now be subject to the tariffs imposed by Trump. Despite Trump’s claim that the U.S. has “more lumber than we ever use,” the National Association of Home Builders (NAHB) has urged the administration to exempt building materials, warning that the tariffs could negatively impact housing affordability.
The NAHB has voiced “serious concerns” that tariffs on lumber will drive up the cost of home construction—especially since most U.S. homes are primarily built with wood. The group fears this could deter developers from building new houses.
“Consumers end up paying for the tariffs in the form of higher home prices,” the NAHB stated.
Lumber from Canada is not the only material at risk. A second potential threat now looms over most timber and lumber imports into the U.S., regardless of their country of origin.
On March 1, Trump ordered an investigation into whether additional tariffs should be applied to lumber and timber imports from all countries or if incentives should be introduced to boost domestic production. The findings of this inquiry are expected by the end of the year.
Maple Syrup
For American households, one of the most noticeable effects of the trade dispute with Canada may be the rising cost of Canadian maple syrup, according to Thomas Sampson, an associate professor of economics at the London School of Economics.
Canada’s maple syrup industry is valued at over a billion dollars and accounts for 75% of global production. Approximately 90% of this syrup comes from Quebec, home to the world’s only strategic maple syrup reserve, established 24 years ago.
“That maple syrup is going to become more expensive. And that’s a direct price increase that households will face,” Sampson said.
He added, “If I buy goods that are domestically produced in the U.S., but that are produced using inputs from Canada, the price of those goods is also going to go up.”
Fuel Prices
Canada is the leading foreign supplier of crude oil to the United States. Official trade data indicates that between January and November last year, 61% of U.S. oil imports came from Canada.
While the new tariffs impose a 25% tax on Canadian imports, energy imports will face a lower 10% tariff.
Although the U.S. does not have a shortage of oil, its refineries are specifically designed to process “heavier” crude oil, which primarily comes from Canada and, to a lesser extent, Mexico.
“Many refineries need heavier crude oil to maximize flexibility of gasoline, diesel, and jet fuel production,” according to the American Fuel and Petrochemical Manufacturers.
If Canada retaliates by reducing crude oil exports to the U.S., gasoline prices at the pump could increase as a result.
Avocados
One of the most significant potential price increases for U.S. consumers involves avocados.
Mexico, known for its warm and humid climate, is the primary supplier of avocados to the U.S., accounting for nearly 90% of the American avocado market each year.
Should tariffs be imposed, the U.S. Department of Agriculture has cautioned that the cost of avocados could surge, affecting prices for popular avocado-based dishes like guacamole.
Conclusion
The new tariffs imposed by President Trump on Canada and Mexico have sparked concerns about potential price increases on several consumer goods, including cars, alcoholic beverages, housing materials, maple syrup, fuel, and avocados. While the administration argues that these measures will protect American industries, economists warn that they may ultimately burden U.S. consumers with higher costs. With Canada and Mexico already planning retaliatory tariffs, the trade dispute could escalate further, impacting prices and supply chains across North America.