US stocks Rise Following Trump's Tariff Plan on Canada, Mexico

What Happened?

U.S. stocks rose on Tuesday following President Donald Trump's announcement that tariffs could be imposed on Canada and Mexico by Feb. 1.

The U.S. dollar has recovered from its biggest percentage drop in 14 months as investors assess Trump's first major actions as president, according to reports.

'We’re thinking in terms of 25% on Mexico and Canada,' Trump told reporters in the Oval Office Monday night.

Trump has remained content amid his claims that suggest America’s closest neighbors and largest trading partners are allowing large scales of undocumented migrants and drugs to flood into the U.S.

An executive order was issued on Monday that declared a national emergency along the U.S. southern border as a result of these claims.

The White House also released a memorandum on Monday that called for a review of existing U.S. trade agreements and seek recommendations on how the U.S. can gain leverage with trading partners.

The Canadian dollar and Mexican peso had reportedly fallen as much as 1.4% each Tuesday against the greenback from the news of imposing sweeping tariffs.

Why it Matters

Trump's stance threatens the potential trading relationship with two of the nation's biggest allies surrounding its auto supply chain and energy imports.

The United States–Mexico–Canada Agreement is up for review on July 1, 2026.

If the three countries do not agree to extend USMCA during the first review period, the agreement will terminate in 2036.

Both Canada and Mexico have reportedly said they’d retaliate against American goods if Trump imposed such tariff hikes.

The matters could result in a potential trade war as the three countries governed a trade flow of $1.8 trillion in goods and services, according to 2022 data.

Mexico President Claudia Sheinbaum reportedly limited her response Tuesday to say she will respond 'step by step.'

Research showed that over 80% of Mexican exports went to the U.S., and manufacturing exports totaled more than $127 billion.

'Canada will respond and everything is on the table,' Canadian Prime Minister Justin Trudeau reportedly said during a news conference Tuesday in a sharp response to any newly imposed taxes.

Prime Minister Trudeau said in November it was exploring potential retaliatory tariffs on certain U.S. imports.

How it Affects You

Some economists have reportedly stated that a 25% U.S. tariff on Canadian imports would likely drive up inflation and push the country into a recession in 2025.

According to CBS MoneyWatch, the U.S. could still feel 'shallow' recession-like impacts of a trade war with Canada if universal tariffs were placed on American products.

Analysis Patrick De Haan at GasBuddy told the outlet that U.S. gas prices could increase 30 to 40 cents or even as high as 70 cents a gallon.

Canada reportedly supplies roughly 20% of the oil used stateside.

Whether it's gas, food, or imported automotive impacts, Americans could soon feel these impacts heavily should a trade war begin between these three countries.