Overview

25% Tariffs on Canada and Mexico

To use IEEPA, the president declares a national emergency under the National Emergencies Act and then exercises discretionary authority that may involve imposing import tariffs, grounded in a threat to national security, foreign policy, or the economy. Unlike his predecessors, Trump used IEEPA to impose tariffs — including levies on Canada and Mexico linked to fentanyl supply chains — in ways that had not been attempted before. The administration argued this authority was sufficient to impose broad-based tariffs on two of the United States' closest allies and largest trading partners.

Canada and Mexico are the United States' first and second largest export markets, with goods exports of $680 billion in 2023, and exports among the three countries support over 17 million jobs. The trading relationship is underpinned by the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA and was itself negotiated during Trump's first administration. Imposing tariffs on USMCA partners through emergency powers raised immediate questions about the coherence of U.S. trade policy and the durability of regional economic integration.

The tariffs on Mexico initially received a 30-day suspension before taking effect on March 4, 2025. For Canada and Mexico, the existing fentanyl and migration IEEPA orders remained in effect even after Trump issued a separate April 2025 executive order on reciprocal tariffs, with USMCA-compliant goods continuing to face a 0 percent tariff while non-USMCA-compliant goods faced 25 percent. The carve-out for USMCA-compliant goods provided partial relief to integrated North American supply chains, but it left a substantial share of trade exposed.

On July 31, 2025, President Trump signed an executive order increasing the tariff on Canadian imports from 25 percent to 35 percent, effective August 1, 2025. The White House cited Canada's continued failure to cooperate in curbing fentanyl flows and its retaliatory tariff measures as justification for the increase.

Significance and Impact

The tariffs produced immediate disruptions across deeply integrated North American supply chains. Canada responded with retaliatory tariffs on $30 billion worth of U.S. goods, escalating to $155 billion after three weeks, marking a significant escalation that disrupted longstanding cross-border economic cooperation. The tariffs sparked widespread anti-American sentiment in Canada, with the percentage of Canadians viewing the United States favorably falling to 24 percent by March 2025.

A March 2025 study by Cirano projected that a 25 percent American tariff without Canadian retaliation would contract Canadian real GDP by 3.2 percent in the initial year after the tariff-induced shock. Canadian GDP growth came in at 1.7 percent for 2025 — the lowest since the COVID-induced recession of 2020 — with Statistics Canada attributing the slowdown primarily to lower exports to the United States. According to the Tax Foundation, the Trump tariffs did not meaningfully alter the trade balance and amounted to an average tax increase of roughly $900 per U.S. household in 2026.

The various rounds of tariffs triggered intense bilateral negotiations between the United States and its two North American partners, involving both trade and non-trade issues whose resolution will influence the positions taken when the USMCA review process begins in earnest. Following Trump's hardline approach, Mexican President Claudia Sheinbaum opted for diplomacy over confrontation. Canada's posture was more confrontational; Prime Minister Mark Carney stated that the old U.S.-Canada relationship, based on deepening economic integration and tight security cooperation, "is over."

Reactions and Debate

The fentanyl rationale generated immediate pushback from both foreign governments and domestic critics. Canadian Prime Minister Justin Trudeau called Trump's criticism unjustified, noting that fentanyl seizures at the U.S. northern border had dropped to near-zero. After tariffs were imposed despite Canada's extensive border cooperation efforts, Trudeau asserted that the legal pretext for the tariffs was "totally false." The administration countered that both countries had failed to adequately stem the flow of illicit drugs.

Within the United States, the use of IEEPA to impose tariffs on allied trading partners drew legal challenges almost immediately. Twelve states, led by Oregon, challenged both the Canada and Mexico tariffs and the broader "Liberation Day" tariffs, with lower courts finding that the president had overstepped his authority under IEEPA. On November 5, 2025, the Supreme Court heard oral arguments in a consolidated appeal challenging whether Trump had lawfully invoked IEEPA to impose tariffs. Justice Neil Gorsuch expressed concern that Congress, as a practical matter, could not reclaim delegated power once ceded, describing it as "a one-way ratchet toward the gradual but continual accretion of power in the executive branch."

By a 6-3 vote, the Supreme Court ruled in February 2026 that IEEPA does not authorize the president to impose tariffs, rendering the many tariff orders issued under that authority without legal basis. IEEPA had never before been used to justify unilateral executive action on tariffs. The ruling — issued in Learning Resources, Inc. v. Trump on February 20, 2026 — represented one of the most significant judicial checks on executive trade authority in decades. Even so, the ruling did not end the most damaging near-term economic consequences, including the radical uncertainty about what rules would govern trade between the U.S. and its partners, which the court's decision may have intensified in the short run.

Outlook

The Supreme Court's ruling removed IEEPA as a tariff mechanism, but the Trump administration moved quickly to find alternative legal footing. President Trump announced a 10 percent tariff on all countries effective February 24, 2026 — this time under Section 122 of the Trade Act of 1974. The administration also pursued tariffs under Section 301 and initiated more Section 232 national security investigations than all previous presidents combined, reflecting a pattern of aggressive interpretation across a range of trade statutes.

Further legal challenges are pending. Scholars have debated whether Congress implicitly repealed older tariff authorities, such as Section 338 of the Tariff Act, when it overhauled U.S. trade law in the 1960s and 1970s, but other scholars argue Section 338 remains fully in force — a question the courts will ultimately have to resolve. Elimination or further reduction in tariffs on Canada and Mexico will likely be tied to whatever additional concessions those countries are willing to offer during the USMCA review, potentially including changes to supply management systems, banking access, softwood lumber, and critical minerals cooperation.

In a broader sense, the episode reflects years of Congress ceding its constitutional role in setting tariffs and trade agreements to the executive branch, granting powers that proved far more expansive than perhaps intended. The Constitution assigns to Congress the power to lay and collect duties and imposts, and some analysts argue that the best structural solution would be a comprehensive congressional overhaul of U.S. trade law. Whether the political conditions for such an overhaul exist remains deeply uncertain. What is clear is that the tariff episode has fundamentally altered U.S. relationships with both Canada and Mexico, introduced durable uncertainty into integrated North American supply chains, and prompted one of the most consequential judicial rulings on executive trade authority in the modern era.