Despite campaigning for two years on the benefits of lowering gas prices, revitalizing manufacturing and curbing migration, President Donald Trump on Saturday implemented a tariff policy that could make all of these policy aims worse.

Ostensibly aimed at stemming the flow of fentanyl and illegal immigration, Trump imposed 25% tariffs on imports from Mexico and Canada and 10% tariffs on imports from China (America’s three largest trading partners). Tariffs of this magnitude would be extremely costly and undermine many of the president’s campaign promises.

Americans buy about $1.5 trillion worth of goods and services from Canada, Mexico and China. Canada alone exported about $100 billion in oil and gas to the United States last year.

While Trump promises lower prices, a tariff on these imports would do the opposite. Even at the president's lower tariff for Canadian energy, a 10% rate on Canada's oil and gas is estimated to increase gas prices by up to 20 cents a gallon, particularly in the Midwest and the Rocky Mountain states.

Tariffs in Trump's first term hurt American consumers

Despite the president’s repeated assertions to the contrary, there is little doubt that Americans will suffer the cost of new tariffs. After all, we’ve been here before. More than a dozen academic studies found that U.S. consumers bore nearly the entire brunt of tariffs imposed during Trump’s first term.

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In addition, the New York Federal Reserve found that tariffs imposed on imports from China cost the average American household about $830 per year after accounting for direct costs and efficiency losses. More tariffs will surely compound this pain.

And it’s not just importers who will suffer.

American exporters, who sell about $1 trillion worth of goods and services to buyers in Canada, Mexico and China, will see their sales weaken in two ways. First, the targeted countries will retaliate with their own tariffs against U.S. exports.

Mexico and Canada immediately vowed retaliatory tariffs, while China said it would challenge Trump's move at the World Trade Organization and take other "countermeasures."

This should not be seen as an idle threat, given Canada’s past retaliation when Trump imposed tariffs on steel and aluminum products from the country in 2019. Mexico retaliated as well, and is planning to do so again if Trump follows through with his threats.

Similarly, China responded to earlier Trump tariffs by targeting American agriculture products, prompting a more than $30 billion taxpayer-funded bailout of the agriculture industry to cover lost sales.

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In addition, tariffs will cause the dollar to appreciate as demand for foreign currency to purchase imports drops. That, in turn, will make all American exports more expensive for foreign buyers and reduce sales.

Trump’s tariff proposals would be a double whammy for many U.S. companies, both exporters and importers. Beyond lower exports, they also will have to pay higher costs for the industrial supplies and capital goods that make up approximately half of U.S. imports − many of which come from Canada, China and Mexico.

Car prices could soar because of tariffs

Consider automotive manufacturing. Free trade agreements among the United States, Canada and Mexico have enabled supply chains to become highly integrated across North America.

So tightly linked are the three countries that a car can cross borders up to eight times before it is fully assembled, and U.S. products account for about 40% of the value added in Mexican vehicle exports.

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Imposing heavy tariffs every time a part or an auto crosses the border would cripple automotive and parts manufacturers and sabotage a key competitive advantage against their European and Asian rivals.

If Trump wants to bolster manufacturing, new tariffs are exactly the wrong way to go about it.

Finally, Trump should consider the enormous disruptions new tariffs would cause our neighbors − and Mexico in particular. Exports account for about 40% of Mexico’s gross domestic product, and 80% of those exports are sent to the United States. That’s about one-sixth of its annual economic output.

A weakened Mexican economy would encourage additional illegal border crossings into the United States as people look for better opportunities − probably not the outcome Trump desires. 

It is difficult to say whether Trump intends to follow through on these threats or whether he's negotiating leverage to extract concessions. In 2019, he threatened Mexico with gradually increasing blanket tariffs to force changes to Mexican border policies but ultimately backed down.

Conversely, Trump did promise aggressive protectionism on the campaign trail in 2016, and his first term included significant tariff increases.

Trump now faces a choice. He can either repeat the tariff mistakes of his first term or pursue his goals of lowering prices, increasing domestic manufacturing and curbing illegal immigration.

He’ll have a hard time doing both.

Clark Packard is a research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.