Trump vows 25% tariffs on goods from Mexico and Canada over border security. What would they do?

President-elect Donald Trump announced he will implement a 25% tariff on all imports from the United States’ top trading partners, Mexico and Canada, on his first day in office unless the two countries put a complete stop to the flow of illegal immigrants and illicit drugs over the border.

Trump made the pledge in a post on his Truth Social account Monday evening. In a separate post published at the same time, he also promised to levy a tariff of 10% on all products imported by U.S. businesses from China, on top of existing tariffs on China, over the country’s failure to police products used to make fentanyl.

“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” Trump said. “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”

Mexican President Claudia Sheinbaum responded on Tuesday with the threat of retaliatory tariffs and criticized the U.S. for creating the demand that fuels the illicit drug industry. Mexico is the United State’s top import partner, selling its northern neighbor over $475 billion of goods in 2023.

Canadian Prime Minister Justin Trudeau had a “good call” with Trump over the phone on Monday after the announcement, he said Tuesday. Trudeau scheduled a meeting with provincial leaders this week to discuss their relationship with the United States while Trudeau’s deputy prime minister reaffirmed Canada’s commitment to stop fentanyl from crossing the border. Canada is also one of the United States’ top import partners — coming after Mexico and China — and is the top destination for U.S. exports.

China, which has long engaged in unfair trade practices with the U.S., responded to the news through its embassy in Washington, D.C., with a statement saying the U.S.-China trade relationship is “mutually beneficial” and that “no one will win” a tariff war. Since Trump’s first term, and the aftermath of COVID-19, China fell from being the United States’ top importer, but remains the second largest importer to the U.S.

What has Trump said about tariffs?

A tariff is a tax placed by the federal government on foreign goods imported into the U.S. Tariffs are paid by importing businesses in the United States. The fiscal tool has been one of Trump’s favorite and most consistent policy planks since entering politics.

During his first term, Trump imposed tariffs on solar panels, washing machines, steel and aluminum. In the run up to his 2024 reelection, Trump focused on tariffs as a solution to government deficits and foreign relations. He also proposed tariffs as the key to deterring foreign conflicts, decreasing grocery costs and paying for new government programs.

“Tariffs are the greatest thing ever invented,” Trump said at a Michigan town hall in September. At an October event in Chicago, Trump called “tariff” the “most beautiful word in the dictionary.”

Tariffs can be used to raise government revenue, protect domestic industries from competition and pressure foreign nations into action. Their consequences can include higher prices for U.S. consumers, increased costs for manufacturing supplies and reciprocal tariffs from other nations.

For a second term, Trump floated the idea of implementing new blanket tariffs of 10-20% on all goods from foreign countries — with tariffs as high as 60% on Chinese goods. Trump’s affinity for tariffs appears to have changed the consensus view since his presidency: President Joe Biden chose to maintain most of Trump’s tariffs on China; even introducing some new ones.

While most economists (and former Utah Sen. Orrin Hatch) view tariffs as economically inefficient and politically ineffective, many experts also believe tariffs should be part of a practical policy toolkit to boost certain kinds of manufacturing at home and punish bad behavior abroad.

Do benefits of tariffs outweigh their costs?

Utah Sen. Mitt Romney is one of those who is open to the use of tariffs in a targeted way to achieve fair trade and national security outcomes. Speaking to Utah business leaders in October, Romney said tariffs could be used to counter predatory pricing by Chinese companies trying to eliminate global competitors.

Almost every country around the world imposes some sort of tariffs. Tariffs can stimulate more factory production in the industries they shield, according to reports from the U.S. International Trade Commission. They can also raise government funds — although they currently account for only a small fraction of tax revenue.

Trump argues that his approach to tariffs will return entire manufacturing industries from overseas and could potentially provide sufficient revenue to replace the income tax that funds government operations. Trump’s advocates, including his pick for Treasury chair, hedge fund executive Scott Bessent, have also argued that tariffs are not inflationary.

However, the immediate impact of Trump’s recently proposed tariff plan, if it were to go into effect, could prove painful for consumers and the economy.

Even before Trump’s latest pledge, the nonpartisan Tax Foundation estimated that Trump’s tariff proposals would increase the tax burden by $524 billon, lower the GDP growth rate by 0.8 percentage points and eliminate 684,000 full-time jobs.

Trump’s latest promise to impose 25% tariffs on the United State’s neighbors to the north and south would translate into a $210 billion tax increase on U.S. businesses, according to Scott Lincicome, the vice president of general economics at the libertarian Cato Institute.

These taxes are usually passed on almost entirely to consumers as importing businesses increase the prices of their products to match the new expense, Lincicome said, pointing out that American consumers rely on Mexico and Canada for over 50% of its fresh fruit imports and nearly 90% of its fresh vegetable imports.

The United States auto industry has deep ties to both countries, meaning that blanket tariffs could be potentially damaging to U.S.-based car manufacturers like Ford, Stellantis and General Motors. Last year, 60% of the United States’ crude oil imports originated in Canada. Tariffs affecting steel imports have already been shown to produce job losses in American industries that depend on steel.

But the early announcement of Trump’s new policy goal, coming nearly two months before his first day in office, could suggest the 25% tariff plan is more of a negotiating tool to get Mexico, Canada and China to address the surge of migrants and fentanyl into the U.S. This is also a tactic Trump used during his first administration.