Brief: GDP and FX to Amplify Tariff Squeeze

Mobius Intel Brief:

U.S. tariffs on Canada, Mexico, and China went into effect today and were followed by immediate retaliation from Canada and China.

Key Intel:

• U.S. Drives Canadian/Mexican GDP: According to 2024 trade data, U.S. goods imports represent 19.5% of Canada’s $2.117 trillion GDP and 27.4% of Mexico’s $1.848 trillion GDP. Conversely, exports to Canada and Mexico represent just 1.2% and 1.1% of the U.S.’ $29 trillion GDP. While Canada announced retaliatory measures and Mexico has promised the same, a prolonged ‘trade war’ with the U.S. would swiftly drive both countries into recession.

• FX Amplifier: Dollar strength against CAD and MXN will amplify the impacts of U.S. tariffs. The dollar is up 7% and 22% Y/Y against the Canadian dollar and Mexican peso, respectively. Tariff threats on major exporting countries and global economic concerns will support the dollar’s safe haven risk premium, adding incremental percentage points to ‘real’ U.S. import duties.

• The Rates: Today’s tariff change raises the rate on all Chinese goods to 20% (+10%) while adding 25% on all goods from Mexico and non-energy goods from Canada. Canadian energy will face 10% tariffs.

Crude Market Impact

• Imports from Canada: U.S. total crude and product imports from Canada gained to a record 4.93 MMb/d in December. The Midwest (PADD 2) accounted for an average of 64% of U.S. crude and product imports from Canada in 2024.

• Preparatory Refinery Utilization: As noted last week, capacity utilization at Midwest refineries ramped to seasonal highs ahead of this week’s tariffs. While Midwest refiners will face additional costs from import duties or replacement transportation, tariffs will likely weigh more heavily on Canadian producers due to insufficient alternative export capacity. Canada’s Trans Mountain expansion raised export capacity to the Pacific by 590 kb/d to 890 kb/d, representing just 18% of U.S. imported volumes.

• Product Stock Buffer: PADD 2 distillate and gasoline stocks gained to 34.7 MMb and 60.2 MMb last week—an eight-year seasonal high for distillates and the second-highest seasonal level in two decades for total gasoline. Historically healthy product inventories will ease immediate pressure on Midwest refiners.

• Imports from Mexico: U.S. total crude and product imports from Mexico fell 44% from June 2023’s peak of over 1 MMb/d to a December 2024 average of 571 kb/d. Pemex data showed exports to the U.S. fell to a multi-decade low of 321 kb/d in January while overall crude and condensate production sank 12% Y/Y to another decadal low of 1.62 MMb/d. Tariffs add to ongoing concerns about Pemex production declines, deteriorating quality of exported crude, and the imminent commercialization of the 340 kb/d Dos Bocas refinery.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.