As President Donald Trump moves forward with imposing tariffs on Canada and Mexico, there are growing concerns about the potential rise in gasoline prices in the United States. On February 1st, it was reported that the U.S. has imposed a 25% tariff on both Canada and Mexico, with an adjustment to a 10% tariff rate on Canadian energy. While this adjustment may offer some relief, experts warn that it could still be a “double-edged sword,” potentially driving up inflation in the U.S.
Canada and Mexico are major suppliers of crude oil to the U.S. According to the U.S. Energy Information Administration (EIA), Canada supplies about 52% of the total crude oil imports to the U.S., while Mexico provides around 11%. Together, they account for a significant portion of the U.S. crude oil supply, with Canada producing 4 million barrels per day and Mexico exporting approximately 450,000 barrels per day to the U.S. The imposition of tariffs on these countries means that the cost of producing gasoline and other refined products will likely rise, with companies passing these higher costs onto consumers.
The U.S. East Coast, which relies on Canadian refineries to meet excess energy demand during peak seasons, is now facing higher costs due to the 10% tariff on Canadian crude oil imports. This could force the region to seek alternative sources, such as Europe, potentially leading to further price increases. Industry groups like the American Fuel and Petrochemical Manufacturers (AFPM) have expressed concerns, urging that crude oil, refined products, and petrochemical products be removed from the tariff list to prevent adverse effects on consumers.
The Canadian Petroleum Producers Association (CAPP) has also cautioned that the tariffs could disrupt the mutually beneficial trade relationship between the U.S. and its North American neighbours. They warned that higher energy costs could fuel inflation and harm the economies of both countries. Additionally, there is speculation that Asian markets, particularly China and India, could benefit from the shift in crude oil trade, purchasing Canadian and Mexican oil at lower prices.
While some analysts, such as Tom Croza from OPIS, believe that the 10% tariff may have a limited immediate impact on gasoline prices—especially during the off-season in February—others caution that the effect could be more significant if the tariffs persist into the summer. Higher tariffs are expected to cause price increases across various sectors in the U.S., including food, alcohol, automobiles, and building materials. Furthermore, the U.S. has also imposed a 10% tariff on China, ending the “de minimis exemption” that previously allowed small shipments (under $800) to avoid tariffs. This change is expected to hurt Chinese e-commerce companies, such as Alibaba and Temu, that have been using this loophole to compete with U.S. businesses.
The combination of these tariffs could put additional pressure on U.S. consumers, leading to higher prices and potential trade disruptions across several industries.