United States tariffs on Mexico and Canada have been paused after three days of retaliatory tariff threats, a tanking stock market, and calls from billionaires to reconsider. Canada, Mexico, and the United States have agreed to negotiate during a 30-day period, then revisit the threat of tariffs.
On Saturday, the Trump administration announced a 25% tariff on goods from Canada and Mexico, along with a 10% tariff on Chinese imports. The White House justified these measures as necessary to pressure these countries into combating the flow of illegal fentanyl into the United States and addressing immigration concerns.
New Tariff Impacts
McKibbin and Marcusoland from the Peterson Institute estimate that a 10% additional tariff on China could lead to a $55 billion contraction in the U.S. economy during Trump’s second term. A 25% tariff on Mexico and Canada could result in a $200 billion decline in U.S. gross domestic product.
The Tax Foundation estimates a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese imports, would decrease economic output by 0.4%1. This reduction is primarily driven by the tariffs on Canada and Mexico, which account for a 0.3% drop in GDP, while the China tariffs contribute an additional 0.1% decline.
The proposed tariffs would also result in a substantial tax increase for American consumers and businesses. If implemented permanently, the study projects these tariffs would raise federal tax revenues by $1.2 trillion between 2025 and 2034 on a conventional basis.
Beyond the immediate economic impact, the tariffs could lead to significant job losses. The Tax Foundation’s model predicts a reduction of 344,000 full-time equivalent jobs, with 286,000 job losses attributed to the Canada and Mexico tariffs and 58,000 to the China tariffs.
Reaction to Tariff Announcement
The announcement of the tariffs on Saturday had initially sent stock markets into a tailspin. The Dow Jones Industrial Average plummeted by 613 points while the S&P 500 also felt the effects, with nearly 450 of its constituents recording losses, resulting in a 1.6% decrease. Cryptocurrencies were not spared, with Bitcoin dropping to approximately $95,000 from over $102,000 before the weekend.
Due to the negative impact tariffs would have on the American public by introducing a tax ultimately borne by consumers, billionaire Mark Cuban expressed his concern on Bluesky. While he addressed his regret to the businesses and individuals likely to be affected by such measures, Cuban expressed hope that Canada and Mexico would respond with retaliatory actions.
“I’m going to put my rich guy hat on and say I hope that Mexico and Canada issue equal, retaliatory tariffs and stick to them for an extended period,” Cuban wrote.
Both countries did.
Mexico’s “Plan B” was a strategic response prepared by President Claudia Sheinbaum’s government to counter the U.S. tariffs threatened by President Donald Trump. The entire plan was not laid out, but the plan likely included targeted tariffs on U.S. products, similar to Mexico’s 2018 response to U.S. steel tariffs, which focused on products like steel, pork, cheese, apples, and bourbon.
Canada was more forward in their plan. The first wave of tariffs imposes a 25% duty on $30 billion (CAD) of U.S. goods starting February 4, 2025, affecting products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper.
The second wave of tariffs, involving a 25% duty on an additional $125 billion (CAD) of U.S. goods, is set to include passenger vehicles and trucks (including electric vehicles), steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, and dairy products, and will be implemented after a 21-day public comment period. Canada also announced potential non-tariff actions, including restrictions on the export of critical minerals and energy products to the United States and prohibiting American companies from bidding on government contracts.
Several Canadian provinces announced their own retaliatory measures against the United States. Ontario, Québec, Newfoundland and Labrador, and Manitoba decided to remove American alcohol products from liquor store shelves. British Columbia is halted purchases of American liquor from “red states” and removed top-selling brands from public liquor stores. Meanwhile, Nova Scotia took a more aggressive stance by removing all U.S. alcohol from stores, canceling existing contracts with American suppliers, and doubling tolls on the Cobequid Pass highway for U.S. commercial vehicles.
Spotify CEO Tobi Lütke wrote on X, “Canada thrives when it works with America together. Win by helping America win,” he wrote. “These tariffs are going to be devastating to so many people’s lives and small businesses.”
Monday’s Meetings
These measures led to Trump meeting with Sheinbaum and Canada’s Prime Minister Justin Trudeau on Monday.
Mexico
Markets began to rebound early when Sheinbaum announced she and Trump came to an agreement for a 30-day pause on tariffs.
Both Mexico and the United States had some of their international concerns addressed in the phone call.
Fentanyl in the United States
According to Sheinbaum’s post on X, Mexico will immediately reinforce the northern border with 10,000 elements of the National Guard to prevent drug trafficking from Mexico to the United States, particularly fentanyl.
Fentanyl, a potent synthetic opioid, has a multifaceted history involving both sanctioned pharmaceutical manufacturing and clandestine production networks. The story of fentanyl begins in 1959 with its synthesis by Paul Janssen in Belgium. By the 1960s, it was introduced into the medical field for its powerful analgesic properties, primarily for treating intense pain in cancer patients and serving as an anesthetic in surgeries. Legally, fentanyl is produced in various forms such as patches, lozenges, and injectables, under strict regulations due to its high potency and potential for addiction.
However, the landscape of fentanyl dramatically shifts when entering the realm of illicit manufacturing. Historically, around 90% of the illicit fentanyl in the United States traced back to China, either shipped directly or via Mexico. A significant change occurred in 2019 when China regulated fentanyl as a controlled substance. This led to a shift in production to Mexico, where precursor chemicals supplied by Chinese companies are used by cartels like the Sinaloa Cartel and the Jalisco New Generation Cartel (CJNG). These groups have established a robust system to synthesize fentanyl in clandestine labs and smuggle it into the U.S. via key corridors.
President Biden issued a National Security Memorandum calling for increased intelligence collection and coordination across federal agencies to disrupt fentanyl production and distribution. The plan focused on several measures that eventually led to reduced rates of the drug making it into the United States.
The Biden administration implemented several measures to enhance fentanyl detection:
- Non-Intrusive Inspection (NII) Technology: CBP (Customs and Border Protection) is dramatically expanded NII technology at southwest border ports of entry. This allowed for screening of passenger vehicles to increase from 2% to 40%, and cargo vehicles from 17% to 70%.
- Forward Operating Laboratories: CBP operates 16 Forward Operating Laboratories that provide rapid on-site testing for fentanyl, reducing the process from weeks to seconds.
- Artificial Intelligence: Machine learning models are used to help CBP officers determine which suspicious vehicles and passengers to refer for secondary screening.
- Advanced Analytics: The Department of Homeland Security (DHS) developed advanced analytics tools to map and dismantle domestic and international fentanyl networks.
This led to the largest seizures of fentanyl at the southern border in American history.
Overdose deaths, specifically those from synthetic opioids like fentanyl, had been climbing steadily since the 1990s and continued to rise during Trump’s administration.
During the first Trump administration (2017-2021), fentanyl-related statistics showed a significant increase in both seizures and overdose deaths. When Trump took office in January 2017, the number of overdose deaths related to synthetic opioids (including fentanyl) was about 21,000. By January 2021, when he left office, that number had increased to nearly 60,000.
This trend had begun before Trump took office and continued after he left.
In 2022, fentanyl was responsible for 73,654 deaths in the US, which was more than double the number of deaths from 2019. Fentanyl was involved in over half of all drug overdose deaths since 2019, and by 2022, it was the underlying cause of nearly 70% of drug overdose deaths.
In the second half of 2023, opioid overdose deaths, including those from fentanyl, started to decline. By December 2023, opioid deaths were 20% fewer than in December 2022. Overdose deaths involving opioids decreased from an estimated 84,181 in 2022 to 81,083 in 2023. The most recent data shows a substantial decline in overdose deaths. Between July 2023 and July 2024, drug overdose deaths in the United States fell by 17%. This 17% decrease is the largest ever seen in the United States.
This reduction in deaths came from an ongoing focus of reducing the amount of fentanyl that made it into the United States.
From 2013-2017 fentanyl seizures were low. In 2018, CBP seized 745 kilograms of fentanyl. By 2019, seizures jumped to 1,208 kilograms, representing a 62% increase from the previous year. By mid-year 2020, CBP had already seized 1,208 kilograms of fentanyl, matching the total for all of 2019.
In 2023, DEA seized nationally more than 77 million fentanyl pills and nearly 12,000 pounds of fentanyl powder, which amounts to more than 386 million deadly doses of fentanyl prevented from reaching consumers.
About 21,148 pounds of fentanyl were seized at the Mexican border in fiscal year 2024, accounting for roughly 96.6% of the total. The amount seized at the southern border in FY 2024 was down from 26,718 pounds in FY 2023.
There was a significant increase in fentanyl seizures under the Biden administration. In the first five months of FY 2024 alone, over 13,000 pounds of illicit fentanyl were seized by U.S. Customs and Border Protection (CBP) and Homeland Security Investigations (HSI). CBP has seized more fentanyl in the last two fiscal years than in the previous five fiscal years combined.
While the border agents did their job, collecting thousands of pounds of fentanyl at the border, it is difficult to estimate how much fentanyl actually came into the United States from the southern border. Statistics suggest, though, that about 90% of fentanyl is confiscated at the border.
Weapons from the United States into Canada
The United States committed to working to prevent the trafficking of high-powered weapons to Mexico.
Recent data has unveiled a disturbing trend in the illegal flow of firearms from the United States into Mexico, with experts warning of its far-reaching consequences on both sides of the border.
An estimated 200,000 to 500,000 firearms are smuggled annually from the U.S. into Mexico, marking a significant increase from previous years. Between 2010 and 2012, approximately 253,000 firearms were trafficked annually, a stark rise from the 88,000 recorded between 1997 and 1999.
The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) reports that 70% of firearms recovered at Mexican crime scenes between 2014 and 2018 originated from the United States. This widespread issue is not confined to border states, as trafficked firearms have been traced to nearly every U.S. ZIP code.
The economic impact of this illicit trade is substantial. The value of firearms sales destined for Mexico has more than quadrupled, jumping from $32 million annually in the late 1990s to $127.2 million annually in the early 2010s. In 2023, Mexico’s total weapons trade exchange, including both international purchases and sales, reached $199 million.
Despite increased efforts by U.S. Customs and Border Protection, which intercepted 1,171 guns at the border in 2023 (up from 173 in 2019), seizures represent only a fraction of the total arms trafficked. A 2009 study estimated that authorities on both sides of the border seized just 14.7% of firearms bought with trafficking intent.
Particularly concerning is the rise in assault-style rifles, which cartels increasingly favor. From 2016 to 2022, there was a 105% increase in rifles found and reported in Mexico, indicating a shift towards more powerful weaponry.
The consequences of this arms flow are dire. Mexico reports nearly 30,000 annual firearm deaths, despite having only one gun store and stringent firearm regulations.
Sheinbaum said the two countries can now move forward with “security and trade.”
Canada
A deal was also announced between Canada and the United States Monday afternoon.
President Trump cited concerns over illegal immigration and fentanyl trafficking as primary justifications for the tariffs. He claimed that Canada was not doing enough to stop the flow of fentanyl into U.S. markets, despite acknowledging that the amount coming from Canada is “much less” than from Mexico.
President Trump’s claim that Canada has failed the U.S. by allowing large amounts of drugs and people across the border, including illegal immigrants from over 70 different countries, is largely exaggerated and not supported by the available statistics.
In the fiscal year 2024, U.S. border authorities confiscated 43 pounds of fentanyl at the Canadian border, which accounted for approximately 0.2% of the total pounds seized across all borders. In the first three months of fiscal year 2025, from October through December 2024, there were 10 pounds of fentanyl seized at the Canadian border, maintaining the same percentage of the total 4,537 pounds seized during that period. This data marks a slight increase in fentanyl seizures at the Canadian border over recent years, with totals rising from 2 pounds in fiscal year 2023 to 43 pounds in fiscal year 2024, after recording 14 pounds in fiscal year 2022.
While there has been a notable increase in illegal crossings from Canada, the numbers remain relatively small compared to those at the southern border. In fiscal year 2024, U.S. authorities recorded 198,929 encounters with migrants at the Canadian border. This represents a significant uptick from previous years, yet it is still considerably lower than the millions of encounters recorded annually at the southern border. Specifically, the Swanton Sector—which covers parts of New York, Vermont, and New Hampshire—saw about 19,000 arrests in fiscal year 2024, a substantial increase from around 7,000 in fiscal year 2023.
Canada has implemented several measures to address concerns about illegal border crossings. The Canadian government has enhanced its border surveillance capabilities by deploying drones, canine units, and helicopters. These steps have proven effective, as evidenced by an 89% drop in illegal crossings by foreign nationals from the U.S. between June and December 2024.
The agreement between the United States and Canada reiterated Canada’s Dec. 2024 proposal to a Canadian border security program valued at $1.3 billion CAD, approximately $900 million USD. This includes the deployment of drones, canine units, and helicopters to enhance border surveillance.
Canada has committed to several new initiatives aimed at bolstering security and combating crime. These include the appointment of a “Fentanyl Czar” tasked with specifically addressing the fentanyl crisis. Additionally, Canada has taken a firm stance by listing cartels as terrorist organizations and ensuring round-the-clock surveillance along the border. Furthermore, the launch of a Canada-U.S. Joint Strike Force will focus on tackling organized crime, fentanyl trafficking, and money laundering. Complementing these measures, Canada has also signed a new intelligence directive targeting organized crime and fentanyl issues, supported by a $200 million investment.
These commitments collectively led to a pause in the proposed tariffs for 30 days, allowing both countries time to work towards a final economic deal.
President Donald Trump has repeatedly floated the idea of Canada becoming the 51st state of the United States, most recently in the context of ongoing trade tensions between the two countries.
Amid escalating trade tensions, Donald Trump suggested that Canada should become the 51st state of the United States as a solution to avoid tariffs and resolve trade deficits. He argued that the U.S. does not rely on Canada for resources such as cars, lumber, or energy. Trump also claimed that as a state, Canada would benefit from lower taxes and enhanced military protection. These comments were made just hours before he agreed to postpone the implementation of a 25% tariff on Canadian goods for 30 days.
Trump has made several claims in “support” of Canada becoming part of the United States.
Here is a fact-check of recent claims:
- “The U.S. is spending hundreds of billions of dollars to support Canada”
This claim is false. There is no evidence of the U.S. providing direct financial support to Canada on this scale. The U.S. does not provide significant foreign aid to Canada. According to ForeignAssistance.gov, the U.S. government’s official foreign assistance tracker, Canada is not a recipient of substantial U.S. foreign aid.
- “Without this support, Canada would not be a viable nation”
This claim is also false and lacks any factual basis. Canada is a G7 country with a strong, diversified economy. In 2023, Canada’s GDP was approximately 2% of global GDP, and its trade flows accounted for about 2.5% of global trade. There is no evidence to suggest that Canada’s economic viability depends on U.S. support.
- “The U.S. has a massive trade deficit with Canada”
This claim is misleading and exaggerated. While there is a trade deficit, it is much smaller than Trump suggests. According to the U.S. Bureau of Economic Analysis, the U.S. goods and services trade deficit with Canada was approximately $40.7 billion in 2023. This is significantly less than the “$200 billion” figure Trump has cited in the past.
It’s important to note that trade deficits are not inherently negative and don’t represent a “loss” for the U.S. economy. The deficit with Canada is largely driven by energy imports, particularly oil, which benefits U.S. consumers through lower gas prices.
In fact, if energy is excluded, the U.S. actually ran an overall trade surplus of +$63 billion USD with Canada in 2023.
China
As of February 3, 2025, the 10% tariffs on Chinese goods are still expected to be implemented tomorrow, February 4, 2025. Unlike the situation with Mexico and Canada, there has been no reported agreement to delay or pause the tariffs on Chinese imports.
The 10% tariff will apply to virtually all Chinese imports entering the United States. This wide-ranging approach differs from previous tariff actions, which often targeted specific industries or product categories.
The comprehensive nature of these tariffs will affect a wide range of industries and products:
- Consumer Electronics: Items like smartphones, computers, and televisions are likely to see price increases.
- Textiles and Apparel: Clothing and footwear imported from China will be subject to the new tariffs.
- Machinery and Equipment: Industrial machinery and manufacturing equipment will also be affected.
- Toys and Sporting Goods: These products, largely sourced from China, will face higher costs.
While the tariffs are set to take effect on February 4, 2025, goods already in transit before 12:01 a.m. on February 1, 2025, will be exempt if importers can certify this through a process to be outlined in an upcoming Federal Register notice.
The proposed tariffs on imports from Canada, Mexico, and China are expected to have significant impacts on American consumers and the broader economy:
Higher Consumer Prices
American consumers are likely to face increased prices on a wide range of goods:
- Groceries and food items, including fresh produce, meat, and prepared foods
- Consumer electronics like smartphones, computers, and televisions
- Clothing and footwear
- Automobiles and car parts
- Household goods and appliances
During Trump’s first presidency from 2017 to 2021, his administration implemented significant tariffs that had wide-ranging effects on the American people, businesses, and the overall economy.
Consumer prices increased shortly after tariff implementation, with some sectors seeing significant price hikes. For example, laundry equipment prices rose by 34% between 2018 and 2023 due to tariffs on imported washing machines.
Many of the tariffs implemented during Trump’s first term remained in place throughout the Biden administration.
