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Soon after Donald Trump, who won re-election last month, has announced an economic strategy that is aggressive even by his standards. On the first day of his second term, he pledged to impose a 25% tariff on imports from Canada and Mexico and to increase tariffs already levied on Chinese goods by another 10%.
The move sparked a frantic backlash. Canadian Prime Minister Justin Trudeau even flew to the president-elect’s Florida resort to make his case. Economists say the potential levy risks upsetting global trade, including green technology manufactured in China. The move will result in a surge in prices for everything from electric vehicles and heat pumps to solar panels.
“Typically, when it comes to tariffs, we’ve seen companies passing them on to consumers,” said Corey Cantor, electric vehicle analyst at Bloomberg NEF. Ansga Baums, a senior fellow at the Stimson Center, a nonpartisan foreign policy think tank, said retaliatory actions by the three targeted countries would only make the situation worse. “This will increase costs for consumers and harm those who cannot afford it.”
“The consensus about the first round of Trump tariffs is that (they) generally did not improve U.S. productivity.”
Trump acknowledged that possibility. But he argued the tariffs were needed to force Canada and Mexico to crack down on drugs, especially fentanyl, and immigrants crossing the border into the United States.
This is not the first time President Trump has used tariffs as a foreign policy tool. In 2018 and 2019, he imposed it on a wide range of products, from steel and aluminum to solar panels and washing machines. The Biden administration has eased some of these tariffs, but left those targeting China in place and recently increased tariffs on Chinese items, including electric vehicles, solar cells, and EV batteries. Experts say these efforts do little more than raise prices.
“The consensus about the first round of Trump tariffs is that (they) generally did not improve U.S. productivity,” said Alex Muresiano, senior policy analyst at the Tax Foundation, a right-wing think tank. The nonprofit calculated that in the long run, Trump’s first round of tariffs would hurt gross domestic product and cost the U.S. about 142,000 jobs. Baums spoke more candidly about their influence. “They were a huge failure. They haven’t achieved much.”
The recently threatened tariffs would further drive up prices for items like solar panels, but they are much broader because they apply broadly to North American trading partners. One far-reaching impact will be on gasoline prices. That’s because even though the United States is the world’s largest oil producer, its older domestic refineries can only process the type of heavy oil produced in Canada. GasBuddy estimates the tariffs could add 35 to 75 cents per gallon of gasoline.
Automakers will also be hit hard, as $97 billion worth of parts and about 4 million vehicles are produced in Canada, especially Mexico. This is where some of the more affordable EVs, like Ford’s Mustang Mach-E and Chevrolet Equinox, are manufactured. “Given the size, most investors would assume Trump will ultimately not follow through on these threats,” Wolfe Research said. But if these threats are implemented, he said, the tariffs would add $3,000 to the price of the average car regardless. Whether powered by gasoline or batteries.
Adding just a few thousand dollars to the price can significantly expand or shrink the potential market of vehicle buyers, says Bloomberg NEF’s Cantor. For example, about 70% of consumers are considering buying a $35,000 car, and if the car costs $30,000, this number jumps to about 87%.
“People adjust their behavior,” he said. This could further harm the EV sector, which is likely to reel from Trump’s rollback of the federal tax credit for electric vehicles.
Baums doesn’t believe more tariffs will meaningfully move industry to the U.S. and believes the Trump administration is “underestimating” how complex the process will be. Others say some realignment may occur. Michelle Davis, director and head of global solar at research firm Wood Mackenzie, wrote that the levy “will undoubtedly increase domestic manufacturing activity to meet market demand.” But nonetheless, she added, “this will make it a more expensive market for domestic buyers.”
Beyond prices, Muresiano worries that the type of protectionism Trump favors could stifle innovation. He cited the U.S. shipbuilding industry as an example. The U.S. shipbuilding industry, which once supplied most of the world’s ships, has since made American ships much more expensive than those produced overseas, thanks to policies intended to protect domestic yards from competition, and are now valued for their value. It’s less than 1% of the world’s total. Tariffs could cause a similar downturn in other U.S. industries, Muresianu said.
Baums’ concerns are more existential. He says Trump is geopoliticalizing issues like climate change, ultimately making it more difficult to share technology, cut costs and combat greenhouse gas emissions. He instead wants countries to come together and agree that some industries, including clean technology, are too important to be put at the center of a trade war.
“The earth is burning,” Baums said. “If there’s one thing we need to work together on, it’s to enable a clean transition.”
