How new tariffs on Mexico and Canada affect Wisconsin industries

Several of Wisconsin’s top industries are figuring out how to adapt to new costs and uncertain futures as the second Trump administration implements tariffs on some of the United States’ biggest trade partners. 

A 25 percent tariff on most goods from Canada and Mexico as well as an increase from a 10 to 20 percent tariff on goods from China have industry leaders worried about the potential of a trade war. 

Almost as soon as the tariffs were implemented, retaliatory tariffs were placed on U.S. exports by trade partners. And the day before the tariffs went into effect, the Dow Jones Industrial Average dropped nearly 700 points. The downturn continued the following day.

U.S. Commerce Secretary Howard Lutnick says President Trump may scale back some tariffs on Mexico and Canada as early as Wednesday.

WPR’s “Wisconsin Today” spoke with two experts about what’s next. Steven Deller is a professor at the University of Wisconsin-Madison who studies Wisconsin’s agricultural and manufacturing economy. And Nithya Nagarajan is a partner in the law firm Husch Blackwell, leading its Trade Remedies Practice which represents clients across the world in trade litigation.

The following interview was edited for clarity and brevity.

Rob Ferrett: Nithya, how can businesses that import stuff from Canada or Mexico figure out if the goods they’re importing have these tariffs? How would they go about paying them?

Nithya Nagarajan: So the simple answer is, right now, everything that comes in from Canada and Mexico are subject to these new, what we are calling the International Emergency Economic Powers Act (IEEPA) tariffs. It’s 25 percent across the board right now. There are no exceptions. So, if your goods are $100, you’re going to pay $25 in tariffs over and above that. 

It’s going to be administered through updated paperwork at U.S. Customs. They have a form that tells importers and brokers handling these imports which codes to use and then how to enter that information. Then the tariff gets applied to the commercial value of the goods that you are declaring at the time of entry. 

RF: Agriculture is obviously a big business here in Wisconsin. What are farmers watching right now?

Steven Deller: They’re trying to monitor what’s going on as best they can. When farmers don’t know what’s going on, they tend to hunker down.

The timing is particularly sensitive, because a lot of the crop farmers are making their planting decisions now. Many of them have already made their decisions. Whether or not they’ve actually got their materials on hand is a question mark. 

RF: Steven, a lot of Wisconsin farmers rely on international exports. Are farmers sure that they’re going to have customers for the crops they plant in the next couple of months?

Steven Deller: It depends on how long these tariffs stay in place. If this is a short term negotiating tool by Trump, it’s just causing a short-term shock. 

We saw the effects of long-term tariffs in the first Trump administration when China started to go to Brazil for soybean goods. Once those other partnerships are built, like with China and Brazil, then that essentially cuts us out of the market. So if these tariffs stay in place for a long time, it will start to have structural ramifications for farming and a lot of other industries in Wisconsin.

RF: Nithya, how much is the uncertainty of all of this affecting how your clients are trying to plan around it?

Nithya Nagarajan: The uncertainty is definitely at the forefront of strategic planning for a lot of clients. In tariffs imposed during the first Trump administration, many companies tried to absorb some of the costs. But this time around, most companies are not absorbing it — everything is going to get passed through to the U.S. consumer. They’ll put in place provisions for the buyer to bear these costs. 

The other option is to find sourcing outside of Canada, Mexico and China, but it’s going to kind of be a whack-a-mole game right now.

RF: Steve, What kind of things are Wisconsin manufacturers weighing in the decisions of how and when to pass on tariff costs to consumers?

Steven Deller: A lot of it depends on the ability to substitute materials. The problem is that so much of the input supply chains have become integrated with other industries, that it’s really difficult to kind of separate some of these things out. 

It also depends on the product. It’s what economists call “price elasticity demand.” If people are really sensitive to prices, the manufacturer or the seller won’t be able to pass on that price. If the customers are not sensitive to prices, then the company is going to be able to pass on that price. 

RF: What are you each watching for during all of this uncertainty? 

Nithya Nagarajan: I’m watching what Prime Minister Justin Trudeau of Canada is doing in the UK and Europe right now to see whether or not there’s going to be movement or support there that he can bring back and try to negotiate.

I’m not seeing any negotiation from China, honestly, because I think at this point they don’t think it’s a negotiable issue. They’re just suing us at the World Trade Organization. 

I think Mexico actually didn’t come out with retaliatory tariffs overnight. I think there’s going to be some backdoor negotiation on the Mexican side as well. 

Steven Deller: I’m looking at whether we’ll get into a tit-for-tat type of trade war. One of the things the Canadian Prime Minister was talking about is cutting off the electricity supply to the U.S. If we get into that kind of tit-for-tat, then things are going to start to deteriorate rapidly. So I’m just going to be watching how our trading partners respond.