Canada and Mexico tariffs create a “rip-over effect” on consumer prices

Tariffs in Canada and Mexico will come into effect Tuesday, and may also raise consumer prices, according to economists.

Customs duties are taxes on foreign imports paid by US companies that import certain goods.

President Trump on Tuesday imposed a 25% tariff on two of the US’s biggest trading partners, Canada and Mexico. Trump has set a 10% tariff on Canadian energy.

Economists say companies usually pass on a portion of the additional tariff costs to consumers.

Certain products, such as Mexican fruits and vegetables and Canadian oil, are one of the major exports to the US — which results in more expensive, the economist said.

However, they said there was a widespread impact across the supply chain, and it wasn’t that clear.

“Taxes create ripple effects that pass through complex supply chains in ways that are not always obvious,” wrote Travis Tokar, professor of supply chain management at Texas Christian University.

Such dynamics make it difficult to predict the impact of accurate products and prices, Tkar said.

Take a fast food chicken sandwich, for example. Though it doesn’t likely come directly from Canada or Mexico, the aluminum foil used in the packaging could raise the costs that could be carried over to consumers, Tokar said.

Almost everything consumers buy is transported by trucks fueled by sophisticated oil products. So, the impact of tariffs on Canadian crude oil could be “a lot wider than it looks at first glance,” Tokar said.

According to the Institute of International Economics, the US sources almost half of its foreign fuels from Canada.

“Costs must ultimately pass through the supply chain,” the end consumer said.

According to Census Bureau data as of December, the US traded $1.6 trillion in goods with Canada and Mexico in 2024, accounting for more than 30% of total US trade.

Tariffs in Canada and Mexico are expected to cost an average American household $930 in 2026, according to a January analysis by the Urban Brooks Tax Policy Center.

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According to the PIIE analysis, taxation costs a typical household of $1,200 per year, taking into account Chinese tariffs. (This analysis only considered the 10% tariff on Chinese imports imposed by Trump in February. He implemented an additional 10% tariff on Tuesday.)

Lovely said the PIIE ratings of consumer impact are “conservative.”

One is not considering how domestic manufacturers respond to less foreign competition, she said.

“These tariffs will raise prices for imports,” said Alexanderfield, a professor of economics at Santa Clara University, who said domestic producers are likely to raise prices to foreigners.

The impact on consumers also depends on the particular industry and company.

With broad supply chains built across North America, economists expect the automotive industry to be the sector most affected.

New cars assembled in Alabama, for example, may not appear to be affected by customs duties, but many of the parts in these cars may come from Mexico or Canada, Tkar said.

“Major automakers such as Ford, General Motors and Stellantis could face higher production costs as they rely on cross-border supply chains of parts and vehicles,” according to Bank of America’s global research notes.

Canada and Mexico tariffs could add nearly $6,000 to the car’s cost, according to Investment Bank Benchmark Co. estimates in February. That dynamic is expected to drive car insurance premiums.

“This is extremely disruptive for the automotive industry,” says Douglas Irwin, professor of economics at Dartmouth University and author of “Clashing over Commerce: A history of Us Trade Policy.”

Target CEO Brian Cornell said Mexico’s tariffs could force them to raise prices for fruits and vegetables such as strawberries, avocados and bananas within days.

Food prices will rise almost 2% in the short term, according to a Yale Budget Lab analysis of tariffs in Canada, Mexico and China. Fresh produce prices rise almost 3%.

According to PIIE, construction materials are also a major export from Canada.

“If you’re doing renovations this summer, you’re not in luck,” Lovely said.

Big businesses could be in a position to absorb some of the tariff costs rather than handing it all over to consumers, Lovely said. However, farmers may not be in a position to do so, for example, as there are often “very low margins across the supply chain.”

To avoid immediate sticker shocks for consumers, even companies that absorb a portion of their costs mean that they are less profitable in investing in new equipment, hiring workers, or developing new products.

Consumers are also affected by foreign retaliation against US trade. This is something that officials in Mexico, Canada and China have already committed.

“You’re not introducing this kind of tariff without expecting retaliation. That’s happening now,” Field said.

Canadian Prime Minister Justin Trudeau announced on Tuesday that he would collect 25% of US imports worth $30 billion. He said a further tariff on US goods would come into effect on the 21st.

Trump responded to the measure on Tuesday by pledging additional tariffs to Canada.

Ontario has retaliated Trump tariffs by 25% tax on electricity exported to 1.5 million homes in Minnesota, Michigan and New York, state leader Doug Ford told The Wall Street Journal.

China has also announced retaliatory tariffs of up to 15% on US agriculture. While US corn faces a 15% levy, soybeans are hit by, say, 10% obligation. Mexican President Claudia Sinbaum is scheduled to announce retaliation measures on Sunday.