Trump  Could Cause Immense Damage to Mexico and Canada with a  Single Signature
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President Donald Trump, with the stroke of  his pen, could plunge America's closest neighbors into  recession.
From his first day in office,  Trump has suggested he  could do just that. Trump has threatened to impose 25% tariffs on all goods from Canada and Mexico on  Feb. 1, in response to what he  sees as inadequate border security  that fails to  keep drugs and migrants  out of the United  States.
Raising tariffs on Canada and Mexico would risk  triggering a  full-scale trade war  in North America's deeply interconnected  economies, where delicate supply chains have  been tightly intertwined for decades.
It would be a risky  bet for Trump, with massive implications for the entire continent  - and a test for the three neighboring  countries, all of which have new  leadership or  leadership in transition. Economists say the tariffs,  if implemented, would  quickly push the Canadian and Mexican economies into recession and likely  lead to higher consumer prices for Americans on cars, gasoline and other imported  goods.
"It would be a real trade war, not a trade  skirmish." This is serious.  "We're going to see job  losses and  home losses," said Joe Brusuelas, chief economist at  RSM.
That's why some on Wall Street  think Trump is bluffing. Investors are not dumping stocks.  CEOs, don't panic. Economists  haven't revised their growth  forecasts downward.
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Ultimately, inciting a trade war  in North America would undermine Trump's promises to  boost the  U.S. economy and  tackle the cost of  living.
It would risk  wiping out the massive gains in the stock market, which Trump  sees as a  kind of real-time  report. And the Federal Reserve  may feel  pressured to keep interest rates high for longer, preventing the  easing of mortgage  rates that Trump  seeks.
Goldman Sachs: Tariffs unlikely
Despite Trump's threats, Goldman Sachs told clients this week  that there was only a 20% chance  that the president  would impose a 25% tariff on Canada and  Mexico.
"We note that in 2019 he also  said he would impose a tariff of up to 25% on Mexico within 10  days, but the tariff  has never  been implemented," Goldman Sachs economists  wrote.Not a valid attachment ID.
Similarly, as Goldman Sachs points out, Trump  has not  followed through on his November 2024 threat to impose tariffs on Canada, Mexico and  China on the first day.
"I have a feeling that this  will not happen." "This is red meat for the president's base," said RSM's  Brusuelas.
It's entirely possible  that Trump  will choose not to  impose tariffs on Canada and Mexico, especially if the two countries agree to open  negotiations this year,  rather than next year, to renegotiate the  United States-Mexico-Canada Agreement (USMCA).  The trade  deal, which replaced NAFTA during Trump's first term, is  up for review by July 2026.
"Trump  is probably  hoping that the  10-day deadline will crack the whip to  spur Mexico and Canada to act,"  said Heidi Crebo-Rediker, a senior fellow  at the Center for Geoeconomic Studies at the Council on Foreign  Relations.

Canadian oil is the largest source of foreign crude  oil for the United  States. Where gas prices could rise
Another Trump promise that could be  jeopardized by tariffs: cheap  gasoline.
During the campaign, Trump  promised to  lower the price of gasoline below $2  per gallon. Analysts are skeptical that  this is possible (or that Trump and the oil industry that  has backed him want  to), but tariffs could  push gasoline prices  in the other  direction.
That's because Canada is  the largest source of foreign  oil to the United States. Canada and Mexico  will supply 71% of  U.S. oil imports  by 2023, according to a new analysis  of Trump's proposals by the Congressional Research  Service. The report  concludes that tariffs on Canadian and Mexican oil could  raise consumer prices for gasoline, diesel and other petroleum  products in the United States, especially in regions most  dependent on Canadian  crude oil.
If Canadian oil is  not exempt from the tariffs,  gasoline prices could  rise by 20 to 50 cents  per gallon in the Great Lakes region  as refineries there  rely more on Canadian oil, Patrick De Haan,  chief analyst at the Energy Information Administration, told CNN. . of  oil on GasBuddy.
De Haan expects a smaller, but still noticeable, impact of 10 to 30 cents  per gallon in the Midwest and  Rockies, as well as in the Northeast, which imports  gasoline, diesel, heating oil and  more and kerosene from refineries in New Brunswick and  Quebec.
Motorists in other parts of the United States  will likely  see smaller increases in  gasoline prices because there are better options to replace Canadian  crude.
"It would hurt all the economies  involved"
However, Trump  rejected the argument that the  U.S. economy  depends on imports from Canada and  Mexico. "We don't need them to make our cars, and they make a lot of them. We don't need their lumber because we have our own forests... We don't need their oil and gas.  "We have more than  anyone else," Trump said during his virtual  address to business leaders  in Davos on  Thursday.
A 25% tariff on all goods from Mexico and Canada would  shave $200 billion from  U.S. gross domestic product (GDP) and $100 billion from Canada's  small economy, and  reduce Mexico's growth  by 2%. Peterson Institute for International  Economics.
"These tariffs  hurt all  affected economies, including the  United States," Peterson Institute researchers Warwick McKibbin and Marcus Noland wrote in the  analysis. The actual damage  is likely even  greater because of  the close ties between the two  nations, the researchers said.
President Donald Trump signs documents as he issues executive orders and pardons for  the January 6  charges in the Oval Office  of the White House on  his inauguration day in Washington,  D.C., Jan. 20. Car prices could  rise by  $3,000. For  example, the auto industry treats North America as if  it were one country, not three. Parts and  machinery are made in factories  scattered across the continent.  Sometimes, auto parts cross the border multiple times before  reaching a dealership. There is no such thing as an all-American car.  "Tariffs of  this magnitude would be devastating  for the  U.S. auto industry," Emmanuel Rosner, senior research analyst at Wolfe Research, wrote in a November report. Car buyers would be directly  affected, with the average cost of a car purchased in the  U.S. rising by about $3,000, Wolfe Research estimates.  Tariffs 'catastrophic' for Mexico Economists say  a diverse United States would be better  equipped to withstand the blows of a trade war. Mexico, on the other hand, is  more vulnerable because its economy  relies heavily on  exports of goods to the  U.S., which account for more than 25% of its GDP.

The Mexican economy is  "extremely exposed" to tariffs,  said Tim Hunter, senior Latin America economist at Oxford  Economics. That's why Hunter expects  the tariffs  to push Mexico into recession later this year. "For Mexico, a  25 percent tariff would be catastrophic," the Peterson Institute researchers said. An economic  disaster in Mexico could worsen  the situation at the border, a  key Trump goal. The Peterson Institute report noted that  the economic  hardship caused by the  tariffs "will increase the incentive for Mexican immigrants to cross the border illegally into the  United States — directly  countering another Trump administration priority."  U.S. markets initially  rose sharply after President  Trump's election, on hopes  of deregulation and tax cuts. A cloud over the economy At the same time, Canada and Mexico are unlikely to  accept the U.S. tariffs  without retaliating. That raises the specter of  escalating violence. "Everything is on the table," Canadian Prime Minister Justin Trudeau said earlier this week. As CNN previously reported, Canada is already preparing to retaliate  by imposing a list of tariffs on  U.S. products ranging from  steel to orange  juice to pet food  and alcoholic beverages like Jack Daniels whiskey. "America is not an economic island, and serious economic problems abroad  can ripple through to  damage our financial system, our export  sector, and  negatively impact our  corporate profits," said Desmond Lachman,  a senior fellow at the center-right American  Business Institute.  Meanwhile, CEOs and investors are trying to make sense of the  successive tariff threats and  predict what comes next. "For  security and  visibility reasons, especially for small businesses,  you should understand what you're doing with  fees as  soon as possible," Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote  Thursday. "Right now, it's just a giant global cloud that  powers businesses around the  world."

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