The impact of the narrow on Canada and Mexico

The duties on Canadian and Mexican products imposed by the President of the United States Donald Trump risk having a profound impact on the economies of Canada and Mexico deeply integrated with that of the first economic power in the world.

According to Statistics Canada data, the National Statistics Office, exports to the United States represented 77% of Canadian goods sold abroad in 2023, for a total of 410 billion dollars. According to the United States Department of Commerce, in the first eleven months of 2024 the commercial deficit of the United States with Canada amounts to almost 55 billion dollars. These are mainly hydrocarbons (oil, bituminous sands and natural gas), as well as components for motor vehicles and vehicles, two sectors that represent 42% of exports to the United States, followed by consumer goods and agri -food products. According to Gregory Daco, EY Economist head, the American decision could lead to a loss of GDP, compared to the initial scenario, 2.7% in 2025 and 4.3% in 2026, with an inflation of 4.5 percentage points higher than the initial scenario.

The effects on Mexico

Mexico depends even more on the USA compared to Canada: in 2024, 84% of its exports were intended for the United States, which is equivalent to 518.7 billion dollars, according to the data of the National Statistical Institute ( Inept). For the United States Department of Commerce, the United States deficit with Mexico amounts to $ 157 billion for the first eleven months of the year. The most affected sector is the automotive industry, but electronics and machinery are also particularly affected, with all three sectors that direct 50% of their production in the United States. According to the Department of Agriculture, the USA depend a lot on Mexican agriculture, which provides them with 63% of the imported vegetables and 47% of the fruit. Over 80% of the avocados come from Mexico. The Mexican economy is the most vulnerable to US customs duties: according to Oxford Economics, 25% imposed by Donald Trump could lead to an increase in inflation, 6% on an annual basis (compared to 4.2% on an annual basis of December) and a 7% drop in weight. Enough to make the country sink into recession.

How companies are preparing

On both sides, companies have chosen for the moment to wait. The goal was first of all to establish whether their sector would have been interested or not and if the duties that would have been applied would have actually been equal to 25% or lower, but also to determine what the consequences would have been. Mexican President Claudia Sheinbaum assured that her country has “a plan A, B, C” to cope with customs duties, without however providing details. Yesterday, his Minister of Economy, Marcelo Jewish, assured that “the private sector is tightening around the president and his defense of the national interest in front of the commercial arbitrariness that we will have to face in a few hours”.

Canadian oil represents 60% US imports

On the Canadian coast, the petrochemical industry hoped to be spared for a while, given its importance for a part of the United States, while Canadian oil represents over 60% of American imports. In the end it was also affected, even if to a lesser extent (10% and not 25% as for other products). Even before the confirmation of these new taxes, the car manufacturers believed that they would be “punished in an disproportionate way”. A small number of them has openly taken into consideration the possibility of relocating production in the United States. Also in this case, the Canadian government was more available, ensuring that she has planned retaliation and adding to be ready to implement the same type of help as those existing during pandemic for the sectors concerned.