The Effect of Trump Tariffs on Mexico and Canada

Key Messages

• US President Donald Trump has recently announced 25% tariffs on US imports from Canada and Mexico. A simulation analysis using a quantitative framework shows that Trump’s tariffs would hit the manufacturing sector of the US’s North American neighbors particularly hard.
• In the event that Mexico and Canada impose symmetric retaliatory tariffs, all sectors of the economy (services, agriculture, and manufacturing) would incur permanent value-added losses.
• In Mexico and Canada, manufacturing has the largest decline in value added, 13% and 14%, respectively.
• For the US economy, agriculture has the largest decline in value added (-2.39%), but other sectors of the economy also incur permanent losses.
• In the event of retaliation, Canada would have to expect a long-term permanent decline in total exports of up to 28%, while Mexico could see a drop of more than 35% and the US of 22%.