Trump’s Trade War: Canada and Mexico Are Cornered

What Happened

President Trump's latest tariffs on Mexico and Canada have sparked outrage, praise, and uncertainty.

Still, a closer look at the actual numbers shows that this prospective trade war will likely be more painful for America's neighbors than for the U.S.

Canada sends a staggering 77% of its exports south to the United States, while Mexico ships 79% of its own goods north. This results in an overwhelmingly tilted balance of power in one direction.

Simply put, both nations heavily depend on American consumers far more than the United States relies on them.

Why it Matters

As of 2024, U.S. exports to Canada totaled around $349.4 billion, while exports to Mexico were roughly $334.0 billion. This totals approximately $683.4 billion in exports to both countries.

According to the Bureau of Economic Analysis, total U.S. goods exports in 2024 amounted to approximately $1.8 trillion. Therefore, exports to Canada and Mexico combined accounted for roughly 38% of total U.S. goods exports in 2024.​

Canada has already hit back with equivalent 25% tariffs on $107 billion worth of U.S. goods, while Mexico is preparing its own countermeasures. But their room to maneuver is much more limited. Unlike China, which could potentially pivot to other global markets in the face of Trump's tariff-heavy approach, Canada and Mexico don’t have the luxury of so many alternatives.

The sheer volume of their exports to the U.S. means any disruption could wreak havoc on their economies. This could stall growth, spiking inflation, and lead to political instability.

Canada, which has a relatively small domestic market and heavily relies on resource exports such as oil, a prolonged tariff fight could be devastating. Canada is the fourth-largest oil producer in the world, with crude oil making up roughly 16% of its total exports.

The lion's share of that oil — over 97% — is exported to the United States. Due to limited pipeline infrastructure and trade agreements, Canada has limited options when it comes to selling its energy resources. This makes Canada’s economy highly dependent on American demand.

While Prime Minister Justin Trudeau has vowed to stand firm, the economic reality is that Canada cannot afford to lose access to its primary buyer. Already dealing with a struggling housing market and slowing economic growth, the country is in no position to absorb the blow of reduced trade with the U.S. Energy exports, which are only facing a 10% tariff, may cushion the damage, but not enough to offset losses elsewhere.

Mexico’s situation is even more precarious. The country’s manufacturing sector is deeply integrated with U.S. supply chains, and its economy is already under pressure from inflation and a weakening peso.

Unlike China, which has built a diversified export network over decades, Mexico is overwhelmingly reliant on American demand. Tariffs on Mexican goods will not only hurt major industries like automotive and agriculture but could also lead to heavy job losses and social unrest.

Meanwhile, the U.S. stands to benefit from this trade war. Compared to China, Canada and Mexico don’t hold significant leverage over the American economy. They don’t own massive amounts of U.S. debt and cannot disrupt global supply chains in a way that could cripple American industries.

Additionally, with Trump’s focus on domestic manufacturing and energy production, the U.S. is less vulnerable to supply chain shocks than it was a decade ago. Should Canada and Mexico refuse to negotiate, their businesses will suffer first, forcing them back to the table under less favorable terms.

How it Affects You

Winning this 'trade war' would likely bring several advantages to the United States. It could incentivize companies to shift production back to American soil, effectively boosting domestic industries and creating jobs.

It would also likely force both Canada and Mexico to accept trade terms far more favorable to U.S. interests, particularly within the energy and manufacturing industries. Furthermore, by flexing economic muscle, Trump could actually strengthen his hand in future negotiations with China and the EU, setting a precedent that the U.S. will not hesitate to use its economic weight to achieve strategic goals.

Although Canada and Mexico are making a show of standing up to the U.S., the reality is they are in no position to win a prolonged trade battle. Their economies are far too dependent, their alternatives too limited, and their political pressures too immediate.

The longer this standoff lasts, the worse it will get for them. But on the other hand, Trump can afford to play hardball, and if he does, America could emerge with the upper hand.