Trump says 25% tariffs on Mexico and Canada may not include oil

Donald Trump has confirmed he will impose 25% tariffs on imports from Mexico and Canada from February, following through on threats issued weeks earlier.

The blanket tariffs on the countries’ products will come into effect on Saturday, Feb. 1.

However, speaking to reporters in the Oval Office on Thursday evening, Trump told reporters his administration was yet to determine whether oil imports would be included in the policy, noting that the decision was pinned on whether the two nations “treat us properly” and “if the oil is properly priced.”

“Oil is going to have nothing to do with it as far as I’m concerned,” he said. “We’re going to make that determination probably tonight on oil. Because they send us oil, we’ll see – it depends on what their price is.”

March contracts for Brent crude — the global benchmark for oil prices — were marginally higher at 8:06 a.m. London time, trading around $76.92 a barrel.

Trump told reporters the looming duties were being leveraged “for a number of reasons” and “may or may not rise with time.”

“No. 1 is the people that have poured into our country so horribly and so much,” he said. “No. 2 is the drugs fentanyl and everything else that have come into the country, and No. 3 are the massive subsidies that we’re giving to Canada and Mexico in the form of deficits.”

“I’ll be putting the tariff of 25% on Canada and separately 25% on Mexico, and we’ll really have to do that because we have very big deficits with those countries,” he added.

“If there are U.S. tariffs, Mexico would also raise tariffs,” President Claudia Sheinbaum said at a news conference last week, according to news agency Reuters, adding that this would trigger price rises for American consumers.

Mexico and Canada are the United States’ biggest trade partners. In 2020, during his first tenure in office, Trump replaced the three countries’ long-standing North America Free Trade Agreement, or NAFTA, with his United States-Mexico-Canada Agreement, or USMCA, which was touted at the time as a better deal for American businesses.

On Friday, Sheinbaum told reporters Mexico would “wait with a cool head” before making any decisions about how to respond to Trump’s tariffs regime.

“We will always defend the dignity of our people, respect for our sovereignty and a dialogue as equals without subordination,” she said, according to Reuters. “We are prepared, and we maintain this dialogue.”

Speaking on CNBC’s “Squawk on the Street” earlier this month, Canada’s minister of international trade, Mary Ng, said “everything is on the table” when it comes to responding to U.S. tariffs, refusing to rule out export taxes on energy exports to the United States.

“If you’re going to put tariffs on Canada, what it actually will do is make things more expensive for Americans,” she said.

There are also concerns that tariffs will hit consumers in Canada and Mexico, however. Earlier this week, for example, policymakers at the Bank of Canada warned that such measures by the U.S. could create persistent inflation in the country.

Both the Mexican peso and the Canadian dollar edged higher against the U.S. dollar on Friday morning, recovering losses seen overnight.

The peso was up 0.3% at 8:18 a.m. London time, while the Canadian dollar gained 0.2% against the greenback.

Carl Weinberg, founder of High Frequency Economics, told CNBC’s “Squawk Box Europe” on Friday that the “numbers are big” when it comes to potential economic collateral damage.

“We’ve got about a trillion dollars’ worth of trade in round numbers worth of [U.S.] imports from Mexico and Canada combined,” he said. “Twenty-five percent of $1 trillion is $250 billion, and that is roughly what is going to come out of the U.S. economy to pay these tariffs.”

He said this equates to around $21 billion a month.

“It will be a plus for bringing down the deficit, that’s the good news here — but it’s going to come out of people’s pockets,” he told CNBC, warning that U.S. growth would also likely be impacted.

“It’s going to impact in February and March this quarter, and then in all the months of the next quarter,” Weinberg said. “We’re going to get a hit of about six-tenths of a percent off of GDP growth in the first quarter, and then another tenth of a percent in the second quarter.”