As Canada, Mexico and the U.S. stepped back a bit Monday from the brink of a trade war, American businesses and consumers were trying to anticipate the consequences if President Donald Trump goes forward with new tariffs after a 30-day timeout.
Trump paused 25% tariffs on Canada and Mexico set to take effect Tuesday after the two countries pledged to step up border security aimed at stopping illegal immigration and the flow of fentanyl into the U.S. Canada would face a 10% tariff on energy products.
Trump also announced new 10% tariffs on China. Combined, the three countries account for about a third of U.S. imports.
Colorado industry representatives, experts and officials said if the tariffs are imposed as announced by Trump over the weekend, families and consumers will ultimately pay more to put gas in their vehicles, buy food at the grocery store and buy new cars. However, they voiced uncertainty over what the fallout might be, especially if the countries respond with their tariffs, as Canada and Mexico have said they would.
And the trade standoff raises plenty of questions about how the U.S., Canada and Mexico would go about untangling their economies that have been so interwoven, first through the North American Free Trade Agreement and then the United States-Mexico-Canada Agreement. Trump helped negotiate the USMCA in 2020 in his first term as president.
“Trump’s reckless tariffs would represent a 25% sales tax on Coloradans and hardworking families that will drive up the cost of groceries, gas, electricity, housing, cars, clothes, and other everyday items,” Shelby Wieman, spokeswoman for Gov. Jared Polis, said in a statement.
The petroleum that is refined in Colorado comes in part from Canada. Suncor Energy’s refinery in Commerce City is the state’s only oil refinery. The company processes oil from the state’s Denver-Julesburg Basin as well as oil sands in the Canadian province of Alberta.
While the U.S. is the world’s leading oil producer, it imports heavier crude from Canada and Mexico because a significant portion of the country’s refineries can’t process the lighter domestic crude. Skyler McKinley, spokesman for AAA Colorado, said roughly 60% of oil imports come from Canada and 10% from Mexico.
“Most of the oil that we refine in this country comes from those two neighbors that are now subject to these new tariffs,” McKinley said. “A tariff is a tax. It’s a tax on imported energy and we import energy, so that’s going to raise the cost, just as any tax does, of doing business.”
But McKinley doesn’t expect gasoline costs to rise much above 25 cents a gallon if the 10% tariff on Canadian energy products goes through. He said it’s possible that some of “our major players” and refiners might not pass along all of the higher costs.
If the tariffs are lifted within a matter of weeks, little of the impact might trickle down, McKinley added.
Meat, lumber and cars
However, the interconnectedness of the North American economy means Coloradans will be affected if the Trump administration pursues the trade restrictions and counter measures are imposed by the other countries. State figures show that Canada was Colorado’s largest international trading partner in 2023, with $5.5 billion worth of imports, or 31% of the total in the state, and $1.8 billion worth of exports, accounting for 18% of the total in that category.
Top imports from Canada included petroleum products at $3.5 billion, or 63% of the total, followed by wood and related products at $278 million, 5% of the total, and industrial machinery at $234 million or 4% of total imports, according to the Colorado Office of Economic Development and International Trade.
Mexico is Colorado’s second most important trading partner. Unlike Canada, the relationship is tilted more in Colorado’s favor, with $1.2 billion in imports, or 6.8% of all imports, and $1.6 billion in exports, representing 16% of outbound trade.
Colorado ranchers and manufacturers sent $426 million worth of meat, $235 million worth of iron and steel and $138 million in industrial machinery to Mexico in 2023. In return, Mexico sent $338 million in industrial machinery, $169 million in vehicles and $144 million in optical, medical and surgical equipment.
The North American meat industry is integrated, said Amanda Countryman, a professor and agriculture economist at Colorado State University. Mexico sends feeder, or young cattle to the U.S. for further production and Canada sends finished beef to be processed in this country, she said.
“The U.S. and Colorado economies don’t function in isolation. We have a highly global, integrated supply chain,” Countryman said.
Mexico exports a large amount of fresh produce to the U.S. The United States also imports a range of agricultural products from Canada, including meat and grains.
The U.S., Mexico and Canada have a highly integrated supply chain, with goods crossing the border multiple times. U.S. automakers have set up component plants in both Mexico and Canada, and parts can cross the border six or seven times, said Inu Manuk, a fellow for international trade policy at the Council for Foreign Relations, which held a press call on the topic Monday.
The tariffs would likely apply each time a part crosses, adding significant costs in the manufacturing process, Manuk said. Some estimates put the added cost at an average of $3,000 per vehicle.
Matthew Groves, CEO of the Colorado Automobile Dealers Association, said the 2020 trade agreement with Mexico and Canada allowed for the multiple border crossings in car production. He said the industry was trying to determine the impact of the 25% tariffs.
“The impact will be different by manufacturer,” Groves said.
“This trade war is not going to make America great again again or even make it great again for the first time. It’s going to make America poorer or, at least, most Americans poorer. How much poorer remains to be seen,” wrote Boston University economics professor Larry Kotlikoff in his blog Economic Matters on Sunday.
The Conference Board, a leading economic research firm, estimates that tariffs against the country’s three largest trading partners could shave 0.9 percentage points in the coming year off U.S. GDP growth, which was running at an annual 2.3% inflation-adjusted rate in the final three months of 2024.
The research firm also projects that the country’s inflation rate will increase 0.6% over the next four quarters in return for $270 billion in customs duties. If the first Trump administration’s experience with tariffs offers a clue, much of that money will go back out in supporting farmers and ranchers that lose export markets.
“The fundamental reason why we trade with other countries is because countries can focus on what they’re relatively better at producing and export those goods while importing goods for which they’re less good at producing,” said Countryman, the agriculture economist. “If you have an escalating trade war with higher and higher costs, you erode the benefits.”