Trump’s Proposed Tariffs on Mexico, Canada Could Spike Inflation, Slow Economy: Experts

Trump announced plans to impose a 25% tariff on all goods from Mexico and Canada and a 10% levy on Chinese imports upon taking office on January 20.
In a social media post, he framed the tariffs as a move to curb illegal immigration and drug trafficking.

Experts suggest this may be a negotiating tactic to pressure Mexico and Canada into addressing these issues.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, noted that such tariffs would likely trigger retaliatory measures, escalating trade tensions.

“At that point, it’s very difficult to unwind the tariff wars,” Hufbauer said.

If enacted, the tariffs would contribute to a sharp rise in inflation, exacerbating consumer costs after a period of post-pandemic price stabilization.

Economists had already anticipated tariffs on Chinese imports and factored them into projections, but duties on Mexico and Canada were unexpected and would violate the North American trade pact implemented in 2020.

The US imported $480 billion in goods from Mexico and $429 billion from Canada in 2024, including vehicles, machinery, and consumer products.

Brendan Duke, senior director of economic policy at the Center for American Progress, estimated the tariffs would cost the average American family an additional $1,300 annually.

Hufbauer highlighted the impact on the US auto industry, which heavily relies on cross-border supply chains with Mexico.

The tariffs could increase vehicle prices by about 10%, reduce auto sales, and result in layoffs among the 1 million US auto workers.

Deutsche Bank predicts that tariffs on Mexico and Canada would push core inflation, which excludes food and energy prices, from 2.6% to 3.7% in 2025.
Without new tariffs, inflation was expected to drop to 2.2% by 2025, according to Deutsche Bank economist Justin Weidner.

Goldman Sachs forecasts a smaller rise in inflation, estimating an increase of 0.9 percentage points due to the proposed tariffs.

Weidner cautioned that while price levels would stabilize after an initial spike, they would remain permanently higher.

“This would undercut the progress on inflation reduction,” he said.

The proposed tariffs could also slow economic growth, particularly if Mexico and Canada retaliate with tariffs on US agricultural products.

Weidner estimated a potential three-tenths of a percentage point decline in US growth in 2026, bringing it below 2%.

Higher inflation might also compel the Federal Reserve to reduce interest rate cuts next year, restraining consumer and business borrowing, Weidner added.

Trump’s election victory earlier this month was driven by voter dissatisfaction with inflation and the perception that the Biden-Harris administration had mismanaged the issue.

Despite his promises to lower prices, economists warn that these tariffs could hinder economic stability.