In today’s Finshots, we tell you about the real reason Trump sent Canada and Mexico into a tariff frenzy.

The Story

On February 1, 2025, US President Donald Trump issued three executive orders to impose tariffs on Canada, Mexico and China. 

A 25% tariff on all goods imported from Mexico and Canada and a 10% tariff on all imports from China. 

But before we get ahead of ourselves, let’s understand tariffs a little better. 

Tariffs are taxes placed on goods imported from other countries. When you place tariffs on imports, those goods suddenly become more expensive. This hurts the countries exporting the said goods. So by all accounts, this is a move intended to hurt Mexico, Canada and China. 

Also, these tariffs are what you call “ad valorem tariffs”, a Latin term meaning “according to value”. This means the tax is calculated as a percentage of the goods’ value.

And starting February 4th, it was expected that all goods coming in from Mexico, Canada and China would carry this additional tariff. 

The only problem was  —  The reasons for these drastic moves weren’t quite clear. 

According to this factsheet released by the White House, the executive action boils down to two simple things. 

Firstly, fentanyl. 

Fentanyl is a synthetic opioid used in the treatment of pain. When prescribed by doctors in a controlled manner, it can be an effective tool for managing severe pain, especially in patients who have developed tolerance to other opioids. However, when used without supervision, fentanyl can be an extremely dangerous drug even in small doses. 

In 2023, fentanyl overdose was responsible for over 70,000 deaths in the US. The very next year officials seized nearly 21,000 pounds of fentanyl at the US -Mexican Border. And President Trump has maintained that the “deadly fentanyl”, pouring through the Mexican border constitutes a national emergency.

So, while the Mexican government may not be complicit in this action, you can see why President Trump should think this is a problem. 

However, the Canadian-US border doesn’t really have this problem. Border security forces only seized 40 pounds on fentanyl during 2024 and that’s inconsequential in the grand scheme of things. 

So why is Canada caught up in all of this?

Well, it’s not just the Fentanyl Trump’s worried about. 

There’s also the illegal alien issue. 

According to an article in the Forbes  —  “Border Patrol apprehended 23,721 people who illegally crossed the US -Canada border.” 

That’s a lot of illegal immigrants and you can see why this should be a point of concern for both Trump and the American people. However, headlines can be misleading. The 23,000 figure represents just 1.5% of all apprehensions in the US. In fact, along the US-Mexico border, security forces arrested more than 1.5 million people in the same year.

So in reality, while there may be a legitimate problem along the US-Mexico border, it doesn’t seem as if Canada really poses this grave threat that the White House has described in its fact sheet outlining its tariff policy. 

Which brings us again to the more fundamental question  —  “Why is Canada being pulled into this mess?” 

Well, maybe because President Trump is pandering to his voter base. He was elected on the back of these very promises and he’s just following up on it. As a bonus, maybe Trump also feels that this move could be a way to garner some much needed respect. 

The only problem is  —  If the White House listed this as the official reason, it would open a can of worms. It would be a public declaration that America is now turning its back on free trade. Or perhaps it could be seen as a violation of his own trade agreements and possibly even the World Trade Organization (WTO) rules. Specifically, Article XXVIII which states that tariffs can only be imposed for specific purposes, such as to protect national security. 

And the Fentanyl and the illegal aliens? 

That’s a “National Security” problem. So you can see why the official reason may not make a lot of sense until you dig a little deeper. 

There’s also a third party in this equation  —  China. Trump imposed a 10% tariff on the red dragon and lumped them together alongside America’s neighbours. But you may ask  —  “China doesn’t share a border with the US. So how come they’re caught up in all of this?” 

Well, China may not be facilitating the flow of Fentanyl directly. But they do have a role to play in this. 

Fentanyl can be prepared in many ways. But irrespective of the method you choose, you have to start with something called a precursor. It’s like the main ingredient in a recipe. You take the precursor and change it chemically, one step at a time until you get the final product. In this case  —  Fentanyl. And Chinese pharmaceutical companies are low-cost producers of precursors. In fact, there’s a big nexus between Mexican cartels and Chinese pharmaceutical companies and even though the Chinese government has tried controlling the supply of precursors, this trade is thriving. So yeah, China is in the crossfire as well. 

Now that we have listed all the reasons for the tariffs, let’s talk about the implications of such a drastic step. 

Well, actually, we don’t need to talk about the implications. Because right after he imposed the tariffs, both Mexico and Canada imposed retaliatory tariffs on the US. And just a day later, President Trump seemingly negotiated a “deal” to resolve the crisis. Both the Canadian Prime Minister and the Mexican President have vowed to deploy additional security forces to control the flow of drugs and illegal aliens. And there will be a temporary freeze on all additional tariffs imposed for the next 30 days, as stakeholders continue to find a more permanent solution. 

But… At the time of writing this story, the tariffs on China are still in place and China has reciprocated with its own set of tariffs on some American imports including crude oil, agricultural machinery and liquefied natural gas.

And that kind of makes us think…

Trump slapped tariffs on Canada and Mexico, citing national security concerns. But just days later, he cut deals with both countries, got them to beef up border security, and conveniently pressed pause on additional tariffs. Meanwhile, China’s tariffs remain untouched.

It almost feels like Canada and Mexico were just pieces in a larger game — a way for Trump to justify the trade war he always wanted with China. He scored quick wins with his neighbours, but the real target may have been China all along.

A classic Trump masterstroke or just a well-timed coincidence? We'll leave you with that thought. Either way though, the tariff game as it seems is far from over. And it’s going to disrupt a lot of supply chains in the process.

Until then…

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