U.S. Tariffs Hit Canada & Mexico: What It Means for Trade, March 4, 2025
- Ryan Gowman
- Mar 4
- 4 min read
Today, U.S. tariffs hit Canada & Mexico, marking a dramatic turn in North American trade. Effective as of midnight AST, these measures slap a 25% tariff on nearly all Canadian goods (with a 10% rate on energy resources) and a blanket 25% on Mexican imports. Announced by the Trump administration as a lever to address border security and drug trafficking, the move has sparked immediate backlash. Canada has countered with retaliatory tariffs on up to CAD 155 billion (roughly USD 106.6 billion) of U.S. goods, starting with CAD 30 billion today, while Mexico promises a response by March 5. Canadian businesses are reeling, and fears of a broader trade war loom large. To understand this shift, let’s break down what tariffs are and how they’ve shaped U.S.-Canada relations—past and present.
What Is a Tariff?
A tariff is a government-imposed tax on goods crossing international borders, usually applied to imports. It’s calculated either as a percentage of the goods’ value (ad valorem) or a fixed fee per unit, paid by the importer—who then decides whether to pass the cost to consumers, find cheaper alternatives, or take a profit hit. Tariffs serve multiple purposes: shielding domestic industries from foreign competition, raising government revenue, or pressuring trading partners on policy issues. The downside? They can disrupt supply chains, inflate prices, and provoke retaliation—as we’re witnessing now.
Picture this: a U.S. retailer importing Canadian maple syrup at $100 per shipment now faces a $125 cost with the 25% tariff. They might hike prices for American buyers, switch to a domestic supplier, or absorb the loss. Meanwhile, the Canadian exporter risks losing U.S. customers if demand dips—a scenario playing out across industries today.
A Brief History of Tariffs Between the U.S. and Canada
The U.S. and Canada share a trade relationship worth over USD 1.3 trillion annually, but tariffs have long been a tool to manage it, reflecting economic goals and political friction.
Early Protectionism
In the 19th and early 20th centuries, tariffs were the norm. The U.S. Smoot-Hawley Tariff Act of 1930 jacked up duties on thousands of imports, including Canadian timber and wheat, to shield American producers during the Great Depression. Canada hit back with its own tariffs, worsening the economic crisis—a stark reminder of tariffs’ double-edged nature.
The Free Trade Era
Post-World War II, global trade liberalized. The 1947 General Agreement on Tariffs and Trade (GATT) nudged barriers down, paving the way for the 1989 Canada-U.S. Free Trade Agreement (CUSFTA). By 1994, the North American Free Trade Agreement (NAFTA) folded in Mexico, slashing most tariffs to zero on qualifying goods. The 2020 United States-Mexico-Canada Agreement (USMCA) fine-tuned this framework, keeping trade largely duty-free—until now.
Pre-Existing Tariffs Before March 4, 2025
Even under USMCA, some tariffs persisted. Canada’s softwood lumber exports to the U.S., a decades-long sore spot, faced duties averaging 8-9% in 2025 due to claims of government subsidies. In 2018, the U.S. briefly imposed 25% tariffs on Canadian steel and 10% on aluminum under national security pretexts (Section 232), only lifting them in 2019 after Canada retaliated with duties on U.S. whiskey and steel. These skirmishes were narrow compared to today’s across-the-board escalation.
Today’s Tariffs: The Details
As of March 4, 2025, the U.S. has enacted:
25% tariffs on all Canadian imports, except energy (oil, natural gas), which gets a 10% rate.
25% tariffs on all Mexican imports, no exceptions yet detailed.
The White House ties these to national security, citing illegal immigration and fentanyl trafficking—though Canada’s role in the latter is minimal (43 lbs seized at the northern border in 2023-24 vs. 21,000 lbs from Mexico). Canada’s response is swift: a 25% tariff on USD 106.6 billion (CAD 155 billion) of U.S. goods, with CAD 30 billion hitting today—think wine, coffee, steel, and appliances. A second wave, targeting CAD 125 billion (cars, aluminum), phases in over 21 days. Mexico’s counterstrike, expected tomorrow, may target U.S. farm goods and machinery.
Impact on Canadian Businesses
Canadian firms, with 75% of exports bound for the U.S., face a storm of challenges:
Export Sectors Under Siege
Energy: Canada supplies over 60% of U.S. oil imports. A 10% tariff hikes costs for U.S. refiners, potentially curbing demand and pinching producers like Suncor.
Automotive: Ontario’s auto hub, tied to U.S. supply chains, could see vehicle costs rise by USD 3,000 (per TD Economics), threatening jobs at firms like Magna.
Lumber and Food: Already-battered lumber exporters face compounded 25% duties, while agricultural giants exporting beef and grains lose U.S. market edge.
Supply Chain Chaos
Integrated industries like autos, where parts cross borders repeatedly, will see delays and cost spikes. Firms may need to retool supply chains—a pricey, slow fix.
Profit Squeeze
Exporters must choose: eat the tariff cost (slashing margins) or raise U.S. prices (risking sales). Small businesses, with less cushion, are most at risk.
Economic Fallout
The Bank of Canada warns of a possible “modest recession” if tariffs stick, with lower exports and investment. A weaker Canadian dollar might ease U.S. sales but jacks up import costs at home.
Concerns Over Retaliatory Tariffs on U.S. Imports
Canada’s countermeasures—starting today with CAD 30 billion and scaling up—raise red flags:
Price Hikes for Canadians
U.S. imports like appliances and peanut butter will cost more. Grocery chains, with slim margins, may pass this on, hitting wallets already stretched by inflation.
U.S. Exporters Suffer
American firms lose competitiveness in Canada—think bourbon or auto parts—facing 25% duties. Competitors from Europe or Asia could swoop in.
Trade War Risk
Trump’s past playbook suggests he might double down with higher tariffs if retaliation persists, as seen with China in 2018-19. Escalation could unravel decades of integration.
Uncertainty Looms
Businesses on both sides delay investments, unsure if this is a short-term tactic or a new normal. Confidence takes a hit either way.
What’s Next?
These tariffs undo years of USMCA harmony, thrusting North America into uncharted waters. Canadian businesses must adapt fast—rerouting exports, cutting costs, or pressing Ottawa for relief. The U.S. bets this pressures Canada and Mexico on security issues, but the economic toll may outweigh gains. With Mexico’s response due tomorrow, the region braces for more turbulence.
How do you see this playing out? Drop your thoughts below as we watch this trade saga unfold.