DETROIT — If Donald Trump makes good on his threat to impose 25% tariffs on all imports from Mexico and Canada, the resulting price increases would clash with his campaign promise to give American families a break from inflation.
Various economists indicate that companies would have no choice but to pass on the additional costs, which would drastically raise the prices of food, clothing, cars, alcoholic beverages and other goods.
The president-elect raised the idea of tariffs, which would include an additional 10% on goods from China, as a way to force countries to stop the flow of migrants and drugs to the United States. But his posts on Monday in Truth Social, threatening to impose tariffs on his first day in office, could just be a negotiating tactic to get countries to change their behavior.
High food prices were a major issue why voters chose Trump over Vice President Kamala Harris, but tariffs would almost certainly raise them even higher.
For example, the Produce Distributors Association, a Washington trade group, said Tuesday that the tariffs will raise prices for fresh fruits and vegetables and hurt American farmers when other countries retaliate.
“Tariffs distort the market and will raise prices in the supply chain, causing the consumer to pay more,” said Alan Siger, president of the association.
Mexico and Canada are two of the largest exporters of fresh fruits and vegetables to the United States. In 2022, Mexico provided 51% of fresh fruits and 69% of fresh vegetables imported by value to the United States, while Canada supplied 2% of fresh fruits and 20% of fresh vegetables.
Before the election, about 7 in 10 voters said they were very concerned about the cost of food, according to AP VoteCast, a survey of more than 120,000 voters.
“We will lower them,” Trump told shoppers in September during a visit to a supermarket in Pennsylvania.
The United States is the world’s largest importer of goods, and Mexico, China and Canada are its top three suppliers, according to the most recent US census data.
People looking to buy a new vehicle would also likely see big price increases, at a time when costs have risen so much that they are out of reach for many. The average price of a new vehicle in the United States is now around $48,000.
About 15% of the 15.6 million new vehicles sold in the United States last year came from Mexico, while 8% crossed the border from Canada, according to Global Data.
Much of the tariffs would be passed on to consumers unless automakers can quickly find productivity improvements to offset them, said CJ Finn, PwC’s U.S. auto sector leader. That means even more consumers may not have the resources to purchase a new vehicle, Finn said.
The hardest hit would be Volkswagen, Stellantis, General Motors and Ford, Bernstein analyst Daniel Roeska wrote in a note to investors on Tuesday. “A 25% tariff on Mexico and Canada would seriously paralyze the United States automotive industry,” he said.
The tariffs would hurt U.S. industrial production so badly that “we hope this doesn’t happen in practice,” Roeska said.
The threat of tariffs weighed on shares of auto companies on Tuesday, particularly those of GM — which imports about 30% of the vehicles it sells in the United States from Canada and Mexico — and Stellantis, which imports about 40% of the two countries. For both, about 55% of their lucrative pickup trucks come from Mexico and Canada. GM shares lost almost 9% of their value, while Stellantis fell almost 6%.
It is unknown how long the tariffs would last if implemented, but they could force auto executives to move production to the United States, which could create more jobs in the long term. However, Morningstar analyst David Whiston said that in the near term, automakers probably won’t make any moves because they can’t quickly change where they build vehicles.
Millions of dollars worth of auto parts cross the borders into Mexico and Canada, and that could drive up prices for already expensive auto repairs, Finn said.
The Distilled Spirits Council of the United States said tariffs on tequila or Canadian whiskey will not boost job creation in the United States because they are distinctive products that can only be made in their country of origin.
In 2023, the United States imported $4.6 billion in tequila and $108 million in mezcal from Mexico, as well as $537 million in spirits from Canada, the council said.
“Tariffs on distillate products from our neighbors to the north and south will harm American consumers and lead to job losses across the U.S. hospitality industry,” the council said in a statement.
Electronics retailer Best Buy said in its third-quarter earnings call that it operates on tight profit margins, so while suppliers and the company will take on some increases, Best Buy will have to pass the tariffs on to customers. “These are goods that people need, and price increases don’t help,” said CEO Corie Barry.
Walmart also warned this week that tariffs could force it to raise prices.
Tariffs could trigger supply chain disruptions because people would buy goods before they are imposed and companies would look for alternative sources of parts, said Rob Handfield, professor of supply chain management at North Carolina State University. . Some companies may not be able to pass on costs.
“It could shut down many industries in the United States. “It could put many American companies out of business,” he said.
Canadian Prime Minister Justin Trudeau, who spoke with Trump after he announced the tariffs, said they had a good conversation about working together. “This is a relationship that we know takes some work and that’s what we will do,” Trudeau said.
Trump’s threats come at a time when arrests for illegally crossing the border from Mexico have been declining. But arrests for illegally crossing the border from Canada have been increasing over the past two years. Much of the United States’ fentanyl is smuggled from Mexico, and seizures have increased.
Trump has a strong legal justification for imposing tariffs, although they conflict with a 2020 trade deal largely negotiated by Trump with Canada and Mexico, said William Reinsch, a senior adviser at the Center for Strategic and International Studies and a former U.S. trade official. Clinton administration. The treaty, known as T-MEC, is subject to review in 2026.
In China’s case, it could simply declare that Beijing has failed to live up to its obligations under an agreement it negotiated in its first term. For Canada and Mexico, he could say the influx of migrants and drugs is a threat to national security and turn to a section of trade law he used in his first term to impose tariffs on steel and aluminum.
The law he would most likely use for Canada and Mexico has a legal process that often takes up to nine months, which would give Trump time to seek a deal.
If negotiations were to fail and tariffs were imposed, all three countries would almost certainly retaliate with tariffs on U.S. exports, said Reinsch, who believes Trump’s tariff threat is a negotiating tactic.
American companies would lobby intensely against tariffs and seek to have products exempted. Some of the biggest exporters from Mexico are American companies that make parts there, Reinsch said.
Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said that in the long term, the threat of tariffs could make the United States an “unstable partner” in international trade. “It is an incentive to move activity outside the United States to avoid all this uncertainty,” he said.
Officials on Trump’s transition team did not immediately respond to questions about what he would need to see to avoid the tariffs and how they would affect prices in the United States.
Mexican President Claudia Sheinbaum suggested Tuesday that Mexico could retaliate with its own tariffs. Sheinbaum said she was willing to talk about the issues, but said drugs were America’s problem.
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Rugaber reported from Washington. Associated Press writers Dee-Ann Durbin in Detroit, Stan Choe and Anne D’Innocenzio in New York, and Rob Gillies in Toronto contributed to this report.
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This story was translated from English by an AP editor with the help of a generative artificial intelligence tool.