My Analysis of Trump's Imposition of Hefty Tariffs on Canada and Mexico

Here’s what I think will happen very quickly.

Let’s start with what doesn’t make sense.

The punitive tariffs of 25% on all imports from Mexico and Canada are not deserved. Both countries have responded positively to President Trump’s demands to reduce illegal immigration (Mexico) and illegal drugs (both countries.)

The real reason for the tariffs is the need for revenue. Imports from Mexico totaled approximately $505 billion in 2024 and $760 billion from Canada, so a tariff of 25% would raise a sizable amount of revenue for US coffers, and the administration needs the revenue to pay for the tax cuts promised during the campaign.

But those wonderful folks in the new administration can’t be blind to the fact that these tariffs will cause massive price increases on certain American imports. For example, we import 90% of fertilizer products used in American agriculture and the vast majority of those comes from Canada. The US also imports cars and car parts from Canada and Mexico and one estimate suggests that the tariffs will result in an average increase of $4,000 for cars sold in the US. From Mexico, we import many agricultural products that will immediately affect trips to the grocery store.

Needless to say, massive price rises will be unacceptable to the American public and also to the administration.

So I believe the administration is playing a wait-and-see game. Will some of the price increases be absorbed by the importers and not passed on? We’ll see. Will others result in immediate price increases? We’ll see.

So here’s what I think will happen very quickly. Delegations from Mexico and Canada will swiftly descend on Washington and the office of the Secretary of Commerce, armed with ink-barely-dry pages of statistics and charts showing the effects of the tariffs. The administration will match the data with inflation statistics derived from the tariffs. Then a bevy of “exceptions” will take place.

Price of avocados gone up? Avocados removed from tariffs.

Potash prices causing soaring agricultural prices? Let’s take tariffs off potash.

And so forth. The administration will immediately make exceptions for imported items that hurt and keep the tariffs on those items where the tariffs do not appear to result in higher prices. In the end, tariffs will remain on items that have not immediately impacted consumer prices, and the objective of raising a massive amount of revenue will have been achieved. Maybe not so dumb after all.

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