Trump eying 25% tariffs on Mexico and Canada starting Feb. 1

DAILY Bites

• President Trump plans to impose 25% tariffs on Mexico and Canada starting February 1, marking a significant change in U.S. trade policy.

• The executive order mandates a review of the U.S.-Mexico-Canada Agreement and instructs agencies to investigate trade deficits, unfair practices, and the impact of stricter trade policies on fentanyl and migrant flows.

• Mexico and Canada are key agricultural trade partners for the U.S., with significant exports to both countries, making potential disruptions a concern for U.S. farmers and ranchers.

DAILY Discussion

On Monday, newly inaugurated President Donald Trump announced plans to impose 25 percent tariffs on Mexico and Canada starting February 1 — which would represent a major shift in North American trade policy. These tariffs, part of broader executive actions designed to renegotiate trade terms, could have significant implications for agricultural trade, which is vital to both the U.S. and its neighbors.

“Americans benefit from and deserve an America First trade policy,” Trump’s executive action said. “Therefore, I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

As a candidate, Trump proposed broad tariffs, including a 20 percent tax on imports from all countries, a 25 percent levy on goods from Mexico and Canada, and a 60 percent tariff on products from China. 

During an Oval Office signing ceremony, Trump acknowledged that the tariffs imposed on China during his first term remained in effect, with former President Biden keeping them largely intact. When asked about broader tariffs, Trump stated, “We may, but we’re not ready for that just yet.”

The executive order he signed on Monday instructed the secretaries of Commerce and Treasury, along with the U.S. Trade Representative, to examine the root causes of America’s trade deficits with other nations. It also called for the creation of an “External Revenue Service” to collect tariffs, identification of unfair trade practices, and a review of existing trade agreements for potential improvements.

Additionally, the order mandates a review of the U.S.-Mexico-Canada Agreement, signed during Trump’s first term, to evaluate its impact on American workers and businesses. It also requires agencies to assess whether more stringent U.S. trade policies could help curb the flow of fentanyl and undocumented migrants into the country.

It’s unclear whether there would be retaliation on any American goods exported to newly tariffed markets. Mexico, for example, is the second-largest market for U.S. agricultural exports, reaching $28.4 billion in 2022. U.S. products account for around 70 percent of Mexico’s total food and agricultural imports.

The U.S. remains Mexico’s primary agricultural export destination, importing over $43.4 billion in Mexican goods in 2022. Key U.S. agricultural exports to Mexico include corn, soybeans, dairy products, pork, wheat, poultry, beef, soybean meal, and food preparations. Mexico’s geographical proximity and trade benefits under the United States-Mexico-Canada Agreement help maintain this strong market share.

Canada is the largest agricultural trading partner of the U.S., with total agricultural exports to Canada reaching 14.5 percent of U.S. exports in 2022. The U.S. is also the largest supplier of agricultural imports to Canada, providing 57 percent of all agricultural goods. The Canada-U.S. Free Trade Agreement in 1989, followed by NAFTA and the USMCA, helped eliminate many tariff and quota barriers, creating an integrated agricultural market.

In 2022, U.S. agricultural exports to Canada included grains, fruit, vegetables, meat, and related products, which together accounted for nearly two-thirds of total exports. Leading exports included fuel ethanol, corn, pet food, pork, and beef.

U.S. agricultural producers benefit from robust exports to both nations, and any disruptions could lead to price increases and reduced market access. While the Trump administration’s actions are a reflection of the need for stronger trade agreements, renegotiating the USMCA or imposing tariffs could threaten long-standing trade benefits and raise concerns about the future of agricultural exports.