Silke Mayr With a single signature, Donald Trump could disrupt North America’s economy and push Mexico and Canada into recession. The potential for such economic damage stems from his repeated threats to impose steep tariffs on these neighboring nations.
Immediate Tariff Threats and Trade War Risks
Trump has proposed 25% tariffs on all imports from Mexico and Canada, citing inadequate border security against drugs and migrants. These tariffs, if implemented, could destabilize the interconnected North American economy, disrupting supply chains built over decades. Economists warn that such actions could swiftly drive Mexico and Canada into recession, while Americans face higher prices on cars, gasoline, and other goods.
“This wouldn’t be a trade skirmish; it’s a full-blown trade war,” said Joe Brusuelas, RSM’s chief economist. Yet, Wall Street appears calm, with many believing Trump may not follow through. CEOs are staying composed, and economists have not revised growth projections. A North American trade war would clash with Trump’s promises to bolster the U.S. economy and lower living costs.
Economic Fallout Across Borders
A 25% tariff could wipe out $200 billion from U.S. GDP, shrink Canada’s economy by $100 billion, and slash Mexico’s growth by 2%, according to the Peterson Institute for International Economics. The auto industry would be hit hard, as cars and parts frequently cross borders during production. Wolfe Research estimates car prices in the U.S. could rise by $3,000.
Gas prices may also spike due to the heavy reliance on Canadian and Mexican oil imports, which comprise 71% of U.S. oil imports. Tariffs could increase gas prices by 20 to 50 cents per gallon in some regions, especially the Great Lakes, Midwest, and Northeast.
Wider Implications for Mexico and Canada
Mexico faces the most significant vulnerability, as over 25% of its GDP depends on exports to the U.S. Economists predict a 25% tariff could trigger a deep recession in Mexico, worsening economic migration to the U.S. Ironically, this would undermine Trump’s border security goals.
Canada, too, would feel the strain. Prime Minister Justin Trudeau has warned of potential retaliatory tariffs on American goods, escalating trade tensions further.
A Cloud Over Global Business
Businesses across North America are bracing for the fallout. Canada and Mexico may respond to U.S. tariffs with their own, intensifying economic uncertainty. Investors, small businesses, and CEOs are urging for clarity on tariff policies, which now loom as a “global cloud” over economic stability.
Desmond Lachman from the American Enterprise Institute summed up the stakes: “Serious economic issues abroad will inevitably hurt our financial system, exports, and corporate earnings.” While Trump’s threats could be a negotiating tactic, the uncertainty is unsettling businesses and fueling concerns about a fragile economic future for the entire region.