Canada, Mexico rates create ‘ripple effects’ on consumer prices

Rates on Canada and Mexico are in force on Tuesday – and they are obliged to increase prices for consumers, sometimes in unexpected ways, according to economists.

Rates are a tax on foreign entry paid by the American entity that imports a certain good.

President Donald Trump imposed a 25% rate on Tuesday to Canada and Mexico, the two largest trading partners in the United States. Trump set a lower rate of 10% on energy from Canada.

Companies usually pass on a few extra costs of rates to consumers, economists said.

Certain products such as fruit and vegetables from Mexico and oil from Canada – which are among their most important exports to the US – will therefore become more expensive, economists said.

But there are also far -reaching consequences for supply chains that are not so clear, they said.

“Rates create wrinkle effects that go through complex supply chains in ways that are not always clear,” wrote Travis Tokar, Professor Supply Chain Management at Texas Christian University, in an e-mail.

Such dynamics make it a challenge to predict precise product and price effects, Tokar said.

Take a fast food chicken sandwich, for example. Although none of his ingredients can come directly from Canada or Mexico, the aluminum foil used in the package would increase the costs that can be passed on to consumers, said Tokar.

Almost everything that consumers buy is transported by trucks that are fed by refined oil products – which means that the impact of rates on crude oil from Canada “can be much wider than it seems at first sight,” Tokar said.

The American sources almost half of its foreign fuel from Canada, according to at the Peterson Institute for International Economics.

“Costs should eventually go through the supply chain” to the final consumer, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.

The US traded $ 1.6 trillion of goods with Canada and Mexico in 2024, according to more than 30% of the total US trade, according to Census Bureau facts From December.

Rates on Canada and Mexico are expected to cost the average American household $ 930 in 2026, according to a January analysis Through the Urban-Brookings Tax Policy Center.

The taxes would cost the typical household $ 1,200 per year after also taking rates on China, according to a piie analysis. The analysis only considered a rate of 10% on the import from China that Trump imposed in February; He set another 10% rate on Tuesday.

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That piie assessment of the impact of consumers is “conservative,” said Lovely.

Firstly, it does not take into account how domestic manufacturers would probably respond to less foreign competition, she said.

“These rates will increase the price of imported goods” and domestic producers would probably increase their prices to “match” their foreign counterparts, said Alexander Field, professor of economics at Santa Clara University.

The impact of consumers will also depend on the specific industry and the company.

Economists expect the car -industry to be the most affected sector, because car manufacturers have built extensive supply chains in North America.

For example, a new car that has been collected in Alabama cannot be influenced by the rates – but many of those car parts can come from Mexico or Canada, Tokar said.

Large car manufacturers such as Ford, General Motors and Stellantis can “get higher production costs due to the dependence on cross -border supply chains for parts and vehicles,” said a Bank of America Global Research Note on Monday.

All in all, the rates of Canada and Mexico could add almost $ 6,000 to the costs of a car, according to an estimate of Investment Bank Benchmark Co. In February. This dynamic is expected to increase car insurance premiums.

“This will be extremely disturbing for the car industry,” says Douglas Irwin, professor of economics at the Dartmouth College and author of “Clashing about commerce: a history of US trade policy.”

Brian Cornell, the CEO of Target, said that Mexico’s rates could force the company to increase prices for fruit and vegetables – including strawberries, avocados and bananas – within a few days.

Food prices in general would increase nearly 2% in the short term, according to one analysis from Canada, Mexico and China rates through the Budget Lab at Yale. Fresh production prices would rise almost 3%.

Building materials are also a large export from Canada – including more than 40% of American import of wood products, according to Piie.

“If you do a renovation this summer, you are a bit of a bad luck,” said Lovely.

Large companies can be able to absorb some of the tariff costs, instead of passing everything on to consumers, Lovely said. But agricultural producers, for example, may not be able to do that, because there are often “very low margins in the supply chain,” she said.

Companies that absorb some of the costs – to prevent immediate sticker shock for consumers – will have less profit to invest in new equipment, to hire employees or to develop new products, which creates an “economic resistance that is less visible but still important,” Tokar said.

Consumers would also be affected by foreign retaliation on US trade – something that officials in Mexico, Canada and China have already committed.

“You don’t place these types of rates without retribution, and that is happening now,” said Field.

On Tuesday, Canadian Prime Minister Justin Trudeau announced a levy of 25% at around $ 30 billion in American imports, immediately in force. Rates on another approx. $ 125 billion in American goods will come into effect in 21 days, he said.

Trump responded on Tuesday to the measures by experiencing extra rates on Canada.

Ontario will impose a tax of 25% on electricity that exports it to 1.5 million houses in Minnesota, Michigan and New York in retaliation for Trump’s rates, Doug Ford, the leader of the province, said The Wall Street Journal.

China also announced retaliation rates of a maximum of 15% focused on American agriculture. American corn will be confronted with a 15%levy, while soybeans, for example, are affected with a 10%duty. Mexican President Claudia Sheinbaum said she intends to announce retaliation measures on Sunday.