Finance
Canada, Mexico tariffs create ‘ripple effects’ on consumer prices
Port Newark Container Terminal on March 3, 2025 in Newark, New Jersey.
Kena Betancur/View Press | Getty Images News | Getty Images
Tariffs on Canada and Mexico took effect Tuesday — and they’re bound to raise prices for consumers, sometimes in unexpected ways, according to economists.
Tariffs are a tax on foreign imports, paid by the United States entity importing a particular good.
President Trump on Tuesday imposed a 25% tariff on Canada and Mexico, the two largest trading partners of the United States. Trump set a lower 10% tariff on Canadian energy.
Businesses typically pass along some of the additional cost of tariffs to consumers, economists said.
Certain products like fruits and vegetables from Mexico and oil from Canada — which are among their major exports to the U.S. — will get more expensive as a result, economists said.
But there are also far-reaching impacts across supply chains that aren’t as clear-cut, they said.
“Tariffs create ripple effects that move through complex supply chains in ways that aren’t always obvious,” Travis Tokar, professor of supply chain management at Texas Christian University, wrote in an e-mail.
Such dynamics make it challenging to predict precise product and price impacts, Tokar said.
For example, take a fast-food chicken sandwich. While none of its ingredients may come directly from Canada or Mexico, the aluminum foil used in its packaging might — driving up costs that could be passed on to consumers, Tokar said.
Nearly everything consumers buy is transported by trucks fueled by refined oil products — meaning the impact of tariffs on Canadian crude oil “could be much broader than it appears at first glance,” Tokar said.
The U.S. sources almost half of its foreign fuel from Canada, according to the Peterson Institute for International Economics.
“Costs eventually have to go through the supply chain” to the end consumer, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.
How much tariffs may cost the typical person
The U.S. traded $1.6 trillion of goods with Canada and Mexico in 2024, accounting for more than 30% of total U.S. trade, according to Census Bureau data as of December.
Tariffs on Canada and Mexico are expected to cost the average American household $930 in 2026, according to a January analysis by the Urban-Brookings Tax Policy Center.
More from Personal Finance:
Who benefits from Trump tax cuts?
Americans are suffering from ‘sticker shock’
How the U.S. has used tariffs throughout history
The levies would cost the typical household $1,200 a year after also accounting for tariffs on China, according to a PIIE analysis. (The analysis only considered a 10% tariff on Chinese imports that Trump imposed in February; he put another 10% tariff in place Tuesday.)
That PIIE assessment of consumer impact is “conservative,” said Lovely.
For one, it doesn’t factor how domestic manufacturers would likely respond to less foreign competition, she said.
“These tariffs will increase the price of imported goods,” and domestic producers would likely raise their prices to “match” those of their foreign counterparts, said Alexander Field, an economics professor at Santa Clara University.
‘Hugely disruptive’ for auto sector
Consumer impact will also depend on the particular industry and company.
Economists expect the automobile industry to be the most impacted sector, since automakers have extensive supply chains built up across North America.
A new car that’s assembled in Alabama, for example, may seem unaffected by the tariffs — but many of those car parts may come from Mexico or Canada, Tokar said.
Major automakers like Ford, General Motors and Stellantis may “face higher production costs due to the reliance on cross-border supply chains for parts and vehicles,” according to a Bank of America Global Research note on Monday.
All told, Canada and Mexico tariffs could add almost $6,000 to the cost of a car, according to an estimate from investment bank Benchmark Co. in February. That dynamic is expected to drive up car insurance premiums.
“This will be hugely disruptive for the auto industry,” said Douglas Irwin, an economics professor at Dartmouth College and author of “Clashing over Commerce: A History of U.S. Trade Policy.”
Fresh produce could see swift price hikes
President Donald Trump signs an executive order in the Oval Office on Feb. 25, 2025. Trump directed the Commerce Department to open an investigation into potential tariffs for copper imports.
Alex Wong | Getty Images News | Getty Images
Brian Cornell, the CEO of Target, said Mexico tariffs could force the company to raise prices on fruits and vegetables — including strawberries, avocados and bananas — within a few days.
Food prices overall would rise nearly 2% in the short term, according to a Yale budget Lab analysis of Canada, Mexico and China tariffs. Fresh produce prices would rise almost 3%.
Construction materials are also a big export from Canada — including more than 40% of U.S. imports of wood products, according to PIIE.
“If you’re doing a renovation this summer, you’re kind of out of luck,” Lovely said.
Big corporations may be in a position to absorb some of the tariff cost, instead of passing on everything to consumers, Lovely said. But agricultural producers may not be in a position to do that, for example, since there are often “very low margins across the supply chain,” she said.
Even businesses that absorb some of the cost — to avoid immediate sticker shock for consumers — means they have less profit to invest in new equipment, hire workers or develop new products, which creates an “economic drag that is less visible but still significant,” Tokar said.
Retaliation also has an effect
Consumers would also be impacted by foreign retaliation on U.S. trade — something to which officials in Mexico, Canada and China have already committed.
“You don’t put these kinds of tariffs in place without expecting retaliation, and that’s happening right now,” said Field.
Canadian Prime Minister Justin Trudeau on Tuesday announced a 25% levy on C$30 billion worth of U.S. imports, effective immediately. Tariffs on another C$125 billion in U.S. goods will take effect in 21 days, he said.
Trump responded to the measures Tuesday by vowing additional tariffs on Canada.
Ontario will impose a 25% tax on electricity it exports to 1.5 million homes in Minnesota, Michigan and New York in retaliation to Trump’s tariffs, Doug Ford, the province’s leader, told The Wall Street Journal.
China also announced retaliatory tariffs of up to 15% targeted at U.S. agriculture. U.S. corn will face a 15% levy, while soybeans will be hit with a 10% duty, for example. Mexican President Claudia Sheinbaum plans to announce retaliatory measures on Sunday.
‘The Big Money Show’ co-hosts discuss buy now, pay later spending options and the impact it will now have on your credit score.
Small, everyday purchases like a meal from DoorDash are now able to be financed through eat now, pay later options — a practice that some experts deem “predatory.”
“You’ve got to have enough sense to not follow the urge to finance a taco, okay? You have got to be an adult,” career coach Ken Coleman told “The Big Money Show,” Wednesday.
“This is predatory, and it’s going to get a lot of people in deep trouble.”
RISKS OF BUY NOW, PAY LATER: ‘TICKET TO OVERSPENDING,’ EXPERT SAYS
DoorDash and Klarna are now partnering up to extend buy now, pay later options to consumers. (Reuters, Getty / Getty Images)
Financial wellness experts are continuously sounding the alarm to cash-strapped consumers, warning them of the devastating impact this financial strategy could have on their credit score as some lenders will begin reporting those loans to credit agencies.
Consumers may risk getting hit with late fees and interest rates, similar to credit cards.
“So your sandwich might show up on your FICO score, especially if you pay for it late,” FOX Business’ Jackie DeAngelis explained.
EXPERTS WARN HIDDEN RISKS OF BUY NOW, PAY LATER
Major players like Affirm, Afterpay, and Klarna have risen to prominence at a time when Americans continue to grapple with persisting inflation, high interest rates and student loan payments, which resumed in October 2023 after a pause due to the COVID-19 pandemic.
Ramsey Solutions personal finance expert and ‘The Ramsey Show’ co-host George Kamel discusses the ‘buy now, pay later’ craze and the trend that celebrates the financial benefits of being childless.
“The Big Money Show” co-host Taylor Riggs offered a different perspective, suggesting that company CEOs have a “duty” to attract as many customers as they want.
“Unfortunately for me, this always comes down to financial literacy — which I know is so much in your heart about training people to save now by later,” she told Coleman, who regularly offers financial advice to callers on “The Ramsey Show.”
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Coleman continued to come to the defense of financially “desperate” consumers, arguing that companies are targeting “immature” customers.
“I’m for American businesses being able to do whatever they want to do under the law. That’s fine. But let’s still call it what it is: it’s predatory, and they know who their customers are,” Coleman concluded, “And I’m telling you, they’re talking about weak-minded, immature, desperate people.”
FOX Business’ Daniella Genovese contributed to this report.
Tax Fraud Blotter: Big plans
U.S. tariff rates under Trump will be higher than the Smoot-Hawley levels from Great Depression era
Accountants tackle tariff increases after ‘Liberation Day’
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoYoung Americans are losing confidence in economy, and it shows online
-
Personal Finance1 week agoStudent loans could be managed by the Small Business Administration
-
Economics7 days agoPCE inflation February 2025:
-
Accounting6 days agoIRS sets new initiative with banks to uncover fraud
-
Economics1 week agoWhite House denials over the Signal snafu ring hollow
-
Economics6 days agoConsumer sentiment worsens as inflation fears grow, University of Michigan survey shows
-
Economics1 week agoTexas troopers are in more and more lethal car chases
-
Personal Finance1 week agoMillions of student loan borrowers past-due after bills restarted: Fed