Canada, Mexico tariffs create 'ripple effects' on consumer prices, economist says

cnbc.com:

Tariffs on Canada and Mexico took effect Tuesday — and they're bound to raise prices for consumers, sometimes in unexpected ways, according to economists.

Tariffs are a tax on foreign imports, paid by the United States entity importing a particular good.

President Trump on Tuesday imposed a 25% tariff on Canada and Mexico, the two largest trading partners of the United States. Trump set a lower 10% tariff on Canadian energy.

Businesses typically pass along some of the additional cost of tariffs to consumers, economists said.

Certain products like fruits and vegetables from Mexico and oil from Canada — which are among their major exports to the U.S. — will get more expensive as a result, economists said.

But there are also far-reaching impacts across supply chains that aren't as clear-cut, they said.

«Tariffs create ripple effects that move through complex supply chains in ways that aren't always obvious,» Travis Tokar, professor of supply chain management at Texas Christian University, wrote in an e-mail.

Such dynamics make it challenging to predict precise product and price impacts, Tokar said.

For example, take a fast-food chicken sandwich. While none of its ingredients may come directly from Canada or Mexico, the aluminum foil used in its packaging might — driving up costs that could be passed on to consumers, Tokar said.

Nearly everything consumers buy is transported by trucks fueled by refined oil products — meaning the impact of tariffs on Canadian crude oil «could be much broader than it appears at first glance,» Tokar said.

The U.S. sources almost half of its foreign fuel from Canada, according to the Peterson Institute for International Economics.

«Costs eventually have to go through the supply chain» to the end