Tariffs Are In Effect. Expect Everything To Become More Expensive.
The Trump administration’s trade war leaves everyone worse off.
President Donald Trump imposed steep duties on America's three largest trading partners on Tuesday. Imports from Mexico and Canada will be subject to a 25 percent tariff (10 percent for Canadian energy), while levies on Chinese products will jump from 10 percent to 20 percent. Combined, these tariffs will affect roughly $1.5 trillion in annual imports.
The Trump administration also plans a global 25 percent tariff on aluminum on March 12, plus a tariff of an unspecified rate on foreign cars and agricultural products in April, according to The New York Times.
The three nations targeted today have all retaliated in kind. Mexico announced a 25 percent tariff on American goods, and Canada has imposed levies on $107 billion worth of U.S. goods. Ontario Premier Doug Ford has said the province will also impose a 25 percent tax on electricity exports to the U.S., which will primarily impact New England, New York, and Minnesota. Ontario will halt all energy exports—which powers over 1 million American homes—if Trump implements more tariffs in April, The Wall Street Journal reports. China, meanwhile, will introduce levies of 10 to 15 percent on American agricultural products, including soybeans, pork, poultry, cotton, and beef. Nearly 50 percent of American soybean and 30 percent of cotton exports go to China.
The U.S. stock market tumbled on Tuesday in response to the flurry of tariffs, erasing $3.6 trillion in gains since Election Day.
These trade barriers will make everything more expensive, especially energy prices. Despite being the global leader in oil and gas production, the U.S. relies heavily on Canada's oil because America's refineries are specifically built to process Canadian crude. "Depending on the tariff rate and how long they're in place, gas prices could rise anywhere from 10–30 cents per gallon, with the Midwest and the Rocky Mountain Region getting hit the hardest," Nick Loris, executive vice president of policy at C3 Solutions, a free market energy think tank, told Reason in February.
Electricity prices, too, are expected to climb, particularly in New England and New York. New England's grid operator warns the tariffs could add $66 million to $165 million to its customers' bills annually.
With the flood of data centers and AI coming onto the grid and baseload sources retiring, operators across the country are warning of shortages, and thus price hikes, in the near future unless more grid capacity is built.
With domestic supply chains capable of only meeting 20 percent of America's transformer demand, the U.S. relies on trade, especially with China and Mexico, to provide transmission and distribution gear to build this capacity. (The two nations—and Canada—are also major suppliers of circuit breakers and switch gear.)
Since 2020, the cost of power and distribution transformers has risen by 106 percent and 74 percent, respectively. A tax on these products and the materials needed to build them domestically will delay the build-out and increase the cost of grid infrastructure, which will likely be passed on to consumers through higher utility bills.
In addition to causing weaker economic growth in China, Canada, and Mexico, Trump's tariffs "could result in a 0.9 percentage point cut to US real GDP growth after four quarters, as well as a potential 0.6 percentage point rise in US inflation over four quarters," warns the Conference Board, a business research organization. Trade wars hurt all parties involved.
