The Ripple Effect of the USMCA Tariffs on Energy and Freight Markets

Trade tariffs have taken center stage, with major policy shifts from China, Mexico, Canada, and the United States sending shockwaves through supply chains worldwide. This tense and unpredictable landscape highlights the intricate relationship between policy decisions and economic impacts, sparking essential discussions about the future of global markets and international partnerships.

Timeline of key events:

• February 1: President Trump announced plans to impose 25% blanket tariffs on all Canadian and Mexican goods, as well as a 10% blanket tariff on all Chinese goods. The only carve-out was a 10% tariff rate for Canadian oil and gas.
• February 3: The tariffs on Canadian and Mexican goods were paused for 30 days. Canada also paused its retaliatory tariffs. The 10% tariff on Chinese goods took effect, and China retaliated with targeted tariffs on U.S. goods that take effect February 10.

USMCA tariff energy market impacts

The U.S. imports between 3-4 million barrels of Canadian crude oil per day, or about 15-20% of total U.S. crude oil demand. Diesel prices were trading around 10 cents higher on Monday, February 3, due to the expected crude oil cost impacts of the tariffs. The announcement that U.S. tariffs on Canadian goods would be delayed one month led to an immediate change of direction for energy markets, and diesel prices finished February 3 higher by a few cents per gallon.

If the 10% energy tariff was reinstated, the projected upside price risk to the U.S. crude oil market – and therefore, diesel prices – would be limited by Canadian crude oil producers’ need to discount their crude oil and absorb much of the tariff to ensure midwestern U.S. refineries absorbed their crude oil. The scale of Canadian crude oil entering the U.S., as well as the dependence on pipelines for transfer, would make it difficult to find near-term alternatives to get it to market. For this reason, analysts were allocating more energy tariff costs to the Canadian side of the border.

About 70% of Canadian crude oil is processed by refiners in the Midwest, so a renewal of the sanctions will have an outsize impact on midwestern diesel prices. However, industry analysts expect the tariffs to have limited upward diesel price impact, with estimates suggesting prices could increase 3-5%.

USMCA tariff freight market impacts

Tariffs often lead to inflationary effects, as seen in the energy market on February 3. These effects can strain consumer finances, reducing demand for goods and, in turn, lowering freight demand.

Reinstating the tariffs could create downward pressure on cross-border freight. In the Breakthrough Ecosystem, we have not seen a clear pull forward ahead of the tariffs taking effect or a movement of freight volumes away from Canada and Mexico. It is too early to tell if volumes will drop due to potential tariffs.

Tariffs could also directly impact the cost of new Class 8 tractors and other trucking equipment imported from Mexico.

USMCA tariff economic impacts

Global markets reacted swiftly to recent U.S. tariff announcements, sparking significant currency fluctuations and raising questions about the future of international trade agreements. The Chinese yuan, Mexican peso, and Canadian dollar all dropped in value, and the U.S. dollar strengthened following the tariff announcements. The Canadian dollar’s valuation against the U.S. dollar dropped to its lowest level since 2003.

The U.S. tariffs levied on Mexico, Canada, and China would cover almost half of all U.S. imports. President Trump also threatens tariffs against the European Union, although the timeline is unclear.

Tariffs may give the U.S. leverage in the 2026 renegotiation of the U.S.–Mexico–Canada Agreement (USMCA trade agreement), or it may upend discussions.

How USMCA tariff negotiations impact supply chains

As USMCA tariff negotiations progress, shippers are closely monitoring the outcomes to understand their impact on freight operations. These tariffs affect not only cross-border trade but also reshape supply chain strategies and regional partnerships. By partnering with an unbiased transportation expert, industry leaders can effectively navigate these complexities, minimize economic disruptions, and stay ahead in the ever-changing transportation landscape.

For a deeper understanding of how USMCA tariffs impact supply chain strategies, connect with the Breakthrough Team today. Our experts provide tailored insights and actionable solutions to help you thrive in an evolving global market.