On Feb. 1, 2025, President Donald Trump threatened to add 25% tariffs on goods imported from Mexico and Canada, and an additional 10% tariff on China. Canadian energy resources are only taxed at 10%.
This may cause Canada and Mexico to put tariffs on U.S. goods. Canada has already threatened to put 25% tariffs on $155 billion worth of goods in retaliation, and China has also said they will take countermeasures against US goods.
A tariff is a tax on imported goods that an importer pays for. Often to keep a business profitable, they will make the price of the goods more expensive for the consumer or buyer. Therefore, the tariff forces the consumer to pay more.
Tariffs allow local companies to expand more easily because they have less competition, however, this often comes at a cost. Often, the countries being taxed increase their tariffs in retaliation. This can lead to both economies having mass unemployment.
However, tariffs may lead to larger employment rates long term, if the retaliation from other countries does not have a huge impact on the economy.
“…They said we’re imposing 25% in tariffs higher on Mexico and Canada, and then the next week they said, oh we’re stepping back because the Canadians and the Mexicans agreed to tighten border restrictions,” said Economist Salem Ajluni.
“In other words, they were not serious about the tariffs but they were using them as a sort of threat, they want to tighten the border…” he said
Soon after Trump threatened 25% tariffs on Canada, Canada agreed to spend $1.3 billion to tighten border security. Assuming these tariffs go into effect, the U.S. would see an increase in prices and an increase in employment, but because of the retaliatory tariffs, employment may not change.
Many large manufacturing countries became self-dependent because of tariffs, in fact, the U.S. only stopped the tariffs in favor of a more international system in the 1930s.
It is not the best comparison because a lot of things have changed since then, when tariffs were first imposed, they accounted for around 90% of the government’s income. But now it is less than 1% of the income stream, the U.S. also has a more globalized economy now, and adding tariffs may negatively impact this.
“If you raise them on everything that comes into the country, you are going to hit big businesses, that are US-owned. Those big businesses are the ones that own the US government, they have a big influence on who gets elected, on what kind of revelations we have, what kind of laws we have…” said Ajluni.
If the tariffs go into effect, it may cause big businesses that work with the U.S. government to shut down or damage their business, Ajluni thinks this will keep Trump from raising tariffs.
These tariffs may cause the economy to become less dependent on foreign producers and may increase employment after a long enough period. However, almost immediately it will cause the item prices to increase substantially.
