On the 1st of February, the US President Donald Trump signed executive orders implementing a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada will have a lower 10% tariff.
The tariffs are scheduled to go into place on Tuesday 4th February. Imports that were loaded onto a vessel or onto their final mode of transit before entering the US prior to 12:01am Saturday (local time) would be exempt from the duties.
Trump has invoked the International Emergency Economic Powers Act (IEEPA), stating that extraordinary threat posed by illegal aliens and drugs constitutes a national emergency under the Act.
What is the International Emergency Economic Powers Act (IEEPA)?
The IEEPA of 1977 provides the President with powers to address any “unusual or extraordinary threat, which has its source in whole or substantial part outside the United States.”
Although past Presidents have frequently used the law to impose sanctions, the IEEPA is considered largely untested for imposing import tariffs and Trump's action would likely face court challenges that could set future precedents.
The IEEPA is seen to provide the fastest path for Trump to impose tariffs, compared to trade laws Trump used in his first term duties on steel and aluminium require lengthy investigations and public consultations.
Centring the tariff action on national security is expected to also assist the tariffs to comply with World Trade Organisation requirements, under the General Agreement on Tariffs and Trade’s Article XXI national security exception.
What impact will this have on the United States?
The Tax Foundation estimates that the tariffs could shrink economic output by 0.4 percent and increase taxes by $1.2 trillion between 2025 and 2034, resulting in an average tax increase of more than $830 per US household in 2025.
Canada, Mexico and China are America’s three largest trading partners and make up nearly half of US trade.
Although the US economy is not highly reliant on trade, the tariffs will impact key industries.
The US automotive sector could also be severely impacted by these tariffs, due to deep supply chain interconnectedness with its North American neighbours with a single vehicle crossing back and forth up to eight times before it is fully assembled. A 25% tariff on Canada and Mexico could raise production costs for U.S. automakers, adding up to $3,000 to the price of cars sold in the US.
Similarly, grocery costs could rise as Mexico is the US’s largest source of fresh produce, supplying approximately50% of all US fruit and nut imports and 60 % of U.S. vegetable imports.
US refineries are also expected to pay higher prices for Mexican and Canadian crude oil with approximately 60% of the oil that the United States imports come from Canada, and 7% percent from Mexico.
What’s next?
Both Canada and Mexico have committed to retaliatory tariffs, while China has vowed to challenge US tariffs at the World Trade Organization and implement unspecified countermeasures in response. In turn, Trump announced plans for additional tariffs, citing imported computer chips, steel, oil, natural gas, copper, pharmaceutical drugs, and goods from the European Union as potential targets.
“Am I going to impose tariffs on the European Union? You want the truthful answer, or shall I give you a political answer? Absolutely. The European Union has treated us so terribly,” Trump told reporters.
There is also speculation that negotiations for the U.S.-Mexico-Canada Agreement (USMCA) could be expedited. The agreement, which replaced NAFTA and was signed by Trump in 2020, requires a joint review by the three countries after six years, scheduled for July 2026.