Everything You Need To Know About Trump’s Tariffs And The Brewing North American Trade War

Trade networks in North America are under stress after Canada and Mexico promised to raise import duties on goods from the United States in response to tariffs from the same.

Though President Donald Trump promotes tariffs as an antidote to trade deficits and shrinking domestic industry, the budding trade war in North America has little to do with trade. Washington has accused its international neighbors of not doing enough to combat drug cartels and human traffickers, and that failure has had harmful spillover effects on the United States.

As a result, Trump has demanded Canada and Mexico crack down on cartels and illicit drug makers or suffer a 25% tariff on all exports to their number one trading partner, except for Canadian energy, which will be under a lesser 10% tariff. The tariffs, originally set to go into effect this week, are already being delayed.

Talks over the tariffs began on Monday with Trump speaking with Trudeau at least twice and Mexico now agreeing to send up to 10,000 troops to police its border with the U.S.

“Mexico sends [a] ton of fentanyl into our country. Canada has seen a massive increase in fentanyl trafficking across its border. There are three ways of stopping this. The first is [to] ask nicely, which we’ve done. It’s gone nowhere,” Vice President JD Vance posted on Sunday. “Now we’re on to the consequences phase.”

Mexico sends ton of fentanyl into our country. Canada has seen a massive increase in fentanyl trafficking across its border. There are three ways of stopping this. The first is ask nicely, which we’ve done. It’s gone nowhere.

Now we’re on to the consequences phase.

— JD Vance (@JDVance) February 2, 2025

Canada and Mexico coordinated over the weekend to announce their own plans for 25% retaliatory tariffs on a slate of American imports. Canadian Prime Minister Justin Trudeau said Canada would target $155 billion-worth of U.S. goods. The details of Mexico’s response have not been finalized, but officials are considering a carousel tariff that would rotate to different U.S. goods, according to The Wall Street Journal.

“The coming weeks will be difficult for Canadians, and they will be difficult for Americans. The level of cooperation, the level of effective partnerships between our two countries that have been established over decades and generations means that this trade action by the Americans and our response is going to have real consequences,” Canadian Prime Minister Justin Trudeau told reporters.

Those consequences are projected to fall much more heavily on Canada and Mexico than the United States, an outcome that Trump likely intends to use as leverage in negotiations.

While the United States sends about a third of its exports to its northern and southern neighbors, Canada and Mexico send about 80% of their exports to the U.S. International trade also comprises much larger portions of Canada’s and Mexico’s economies than the United States’.

If just the U.S. tariffs on Canada and Mexico were implemented, U.S. consumers would suffer an extra half-point of inflation over the next year, according to projections from the Peterson Institute for International Economics. The added inflation is likely to be concentrated in certain affected goods, such as fuel.

In contrast, Canada and Mexico would suffer an extra 1.7 and 2.3 points in inflation, respectively. The tariffs could also devastate some of their largest industries, such as vehicle manufacturing and oil and gas, because of the extent to which both countries rely on American markets.

The negative effects of tariffs projected by the Peterson Institute will be magnified with the addition of tariffs going from Canada and Mexico on exports from the U.S., according to experts.

To ratchet down trade tensions between the three countries that in 2019 signed the USMCA trade agreement, the White House has demanded action against drug trafficking and illegal immigration.

Mexico and its drug cartels are major pipelines for illegal drug smuggling and human trafficking into the United States. Canada has been, as well, to a much lesser extent. Trudeau appeared surprised that Trump initiated tariffs against Canada because of the flow of drugs and illegal immigration coming from Canada.

“We have one of the strongest, most secure borders between Canada and the United States. As I said, less than one percent of fentanyl going into the United States comes from Canada, less than one percent of illegal migrants going into the United States come from Canada,” Trudeau told reporters over the weekend.

The illicit movement and drugs and people into the U.S. from Canada has surged in recent years, though it still remains low relative to the U.S. southern border.

Over the weekend, Trump and Vance have added on to the list of grievances with Canada its failure to meet NATO obligations on military spending and restrictions on imports from the U.S. as well as other issues.

“Canada has been very abusive of the United States for many years,” Trump said Saturday. “I love the people of Canada. I disagree with the leadership of Canada and something is going to happen there.”

The White House accused Mexico of collaborating with the drug cartels that operate widely throughout the country. The collaboration has been widely recognized in Washington, though a formal accusation against the Mexican government has not been made until now.

“The Mexican DTOs have an intolerable alliance with the government of Mexico. This alliance endangers the national security of the United States, and we must eradicate the influence of these dangerous cartels from the bilateral environment,” Trump’s February 1 order directing tariffs on Mexico says.

“The government of Mexico has afforded safe havens for the cartels to engage in the manufacturing and transportation of illicit drugs, which collectively have led to the overdose deaths of hundreds of thousands of American victims,” the order continues.

Mexican President Claudia Sheinbaum called the White House’s accusation “slander,” according to CBS News.

“If the United States government and its agencies wanted to address the serious consumption of fentanyl in their country, they can combat the sale of narcotics on the streets of their main cities, which they don’t do, and the money laundering generated by this illegal activity that has done so much harm to their population,” Sheinbaum said.