Tariff Day and the Brave New Trade Order
Who Wins, Who Loses, and the Fate of USMCA
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North America’s Precarious Trade Standoff: What to Expect on "Tariff Day"
In less than 100 days, the new Trump administration has upended global trade, reneging on long-established international commitments, shifting global alliances and rewiring global supply chains at an unprecedented pace. Today, April 2, 2025, also known as Tariff Day or “Liberation Day,” North America will enter its most precarious trade standoff in decades, setting the stage for a high-stakes economic showdown.
Retaliatory tariffs, aggressive negotiations, and market volatility will dominate the landscape, forcing businesses and policymakers into uncharted territory. The future of the US-Mexico-Canada Agreement (USMCA) hangs in the balance, alongside critical industries across the continent.
This piece unpacks what’s at stake for Mexico and Canada, the industries most impacted, and the potential fate of the US-Mexico-Canada Agreement (USMCA). But first, a quick note on the US tariff strategy.
The US Tariff Strategy: A Multi-Pronged Approach
The Trump administration’s approach to tariffs is not uniform; rather, it follows a multifaceted framework serving economic, industrial, and geopolitical objectives.
1. Tariffs Aimed at Boosting US Manufacturing – Likely Permanent
These tariffs primarily target steel, aluminum, and certain industrial components. Their purpose is to make foreign production less competitive compared to US-based manufacturing. Unlike previous trade barriers that were subject to negotiations or diplomatic pressure (2018 tariffs), these tariffs are designed to be a long-term protectionist measure. They are unlikely to be lifted in the foreseeable future, regardless of industry lobbying or economic consequences.
2. Geopolitical Tariffs – Set to Escalate
Tariffs on adversarial nations, including Chinese imports and Venezuelan oil, are part of a broader geopolitical strategy. They are intended to weaken economic rivals while incentivizing companies to shift supply chains away from politically contentious regions. The expectation is that these tariffs will escalate, prompting retaliatory actions from affected countries and further straining global supply chains.
3. Negotiation Leverage Tariffs – Temporary but Recurring
Under the International Emergency Economic Powers Act (IEEPA), tariffs on Mexico and Canada serve as bargaining tools, subject to cyclical imposition and removal. While these tariffs are not meant to be permanent due to their adverse impact on inflation and competitiveness, they will likely be lifted and reimposed multiple times in the coming months. This unpredictability creates sustained uncertainty for businesses dependent on cross-border trade.
Impact on North American Trade: Who Bears the Brunt?
Under the IEEPA framework for tariffs, the US has distinguished between USMCA-compliant and non-compliant goods, implementing a selective tariff structure:
USMCA-qualifying goods are exempt from tariffs, except for steel, aluminum, and potentially autos.
All other imports face a 25% tariff starting April 2, 2025.
Non-USMCA Canadian potash & oil receive a lower 10% tariff exception.
De minimis duty-free treatment remains for eligible shipments.
This selective tariff strategy aims to incentivize businesses to align with USMCA requirements, while penalizing those relying on non-compliant supply chains. However, its impact varies significantly by industry and country.
Mexico’s Tariffs: Key Sectors & Market Impact
Mexico’s economy is deeply integrated with the US market, making it particularly vulnerable to IEEPA tariffs. Key sectors such as electronics, auto parts, medical devices, oil, beer, and appliances are among the most impacted.
The good news for Mexico is that many of its exports already comply with USMCA regulations. In 2024, approximately 50% of Mexico’s exports to the U.S. met these standards. By 2025, this figure could rise to 80-85% as businesses adjust their supply chains to maintain tariff-free access. However, companies still reliant on non-compliant supply chains will face significant financial strain due to today’s tariff escalation.
Consumer and Business Impact
Higher prices for US consumers: Electronics and household appliances will become more expensive. Recent studies suggest significant price increases for US autos as well (additional $5000-15,000).
Increased costs for US manufacturers: Companies dependent on Mexican inputs will face higher production costs.
Total goods trade between the US and Mexico reached $839 billion in 2024, exceeding U.S.-China trade by $257 billion. Any disruption to this relationship carries significant economic risks for both nations.
Canada’s Tariffs: Key Sectors & Market Impact
Canada’s trade relationship with the US is similarly at risk, with several key industries set to bear the brunt of the new tariffs. Like Mexico, Canada is working to increase the share of its USMCA-compliant exports. In 2024, only 38% of Canadian exports to the U.S. met these standards. By 2025, this figure could rise to 80% as businesses adapt to the new trade environment. Today’s tariff imposition threatens key industries and raises political tensions, however, Canada’s federal elections, scheduled for April 28, 2025, could provide the political stability necessary for trade negotiations to progress.
Consumer and Business Impact
Canada’s Trade Deficit: Without energy exports, Canada runs a trade deficit with the U.S., making tariff escalation particularly concerning.
Loss of US Market Access: Tariffs will make Canadian goods less competitive in the US, prompting a backlash from Canadian consumers, including additional boycotts of US products.
Total US-Canada goods trade stood at $762 billion in 2024, making this a high-stakes situation for both nations.
Final Thoughts: The Future of North American Trade
April 2, 2025, marks a turning point for trade in North America. While some believe the tariffs are a temporary negotiating tactic, others fear they signal a broader, more permanent, shift toward protectionism. I fall into the latter camp. Businesses, policymakers, and investors must brace for continued volatility, knowing that today’s crisis could either lead to a breakthrough—or a prolonged trade war with unpredictable consequences.
For now, the only certainty is uncertainty, and the USMCA appears to be on life support.
Prediction: A Rapid and Decisive Deal
Despite today’s tariff implementation, negotiations are already in motion. The confirmation of Jamieson Greer as US Trade Representative on February 26, 2025, signaled an accelerated timeline for a potential resolution. Behind closed doors, trade officials are working to prevent a prolonged standoff.
The expectation is that negotiations will result in a restructured but enduring USMCA—one that preserves tariff-free trade for compliant goods under a "high fence, small yard" model. However, the constant shifts in trade policy are eroding investor confidence, discouraging long-term investment in North American supply chains
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