How Potential New Tariffs on Mexico and Canada Could Raise Hotel Prices and Disrupt Travel

When countries clash over commerce, the hospitality industry often bears the impact: operating costs rise, pricing strategies shift, and travel patterns change. For travelers and hoteliers, the stakes are significant: trade disputes don’t just raise hotel costs, they can also influence cross-border travel patterns and revenue optimization strategies.

When countries clash over commerce, the hospitality industry often bears the impact: operating costs rise, pricing strategies shift, and travel patterns change. For travelers and hoteliers, the stakes are significant: trade disputes don’t just raise hotel costs, they can also influence cross-border travel patterns and revenue optimization strategies.

Past U.S. tariffs and cross-border tourism

Economists note that tariffs heighten the perception of an “unwelcoming environment,” especially if immigration rules become stricter or political rhetoric grows harsh. In earlier U.S.–Canada trade spats, some Canadians initiated informal boycotts, reducing leisure trips to American destinations. 

The same holds true for the U.S.-Mexico relationship: a sudden spike in tariffs on Mexican goods can prompt calls from Mexican consumers to vacation elsewhere.

Although these shifts can be subtle and hard to measure directly, there is evidence that heightened trade barriers and political friction correlate with dips in cross-border travel. 

Fewer travelers mean empty hotel rooms, lower revenue, and tougher decisions for hotel operators, especially those in border states that rely on quick weekend getaways and short-haul traffic.

“Unwelcoming” signals

U.S. industry leaders note that protectionist trade policies can send an unwelcoming message that discourages foreign visitors.

“Tourism is our biggest export… We’ve not had a welcoming message in the last couple of years. We’re making it difficult for people to come here, and we’re adding… the negatives that surround trade,”

warned Jon Bortz, CEO of Pebblebrook Hotel Trust, amid tariff escalations​.

Border regions and neighboring markets:

Tariffs can also affect travel between the U.S. and its closest neighbors. For example, during a 2018 U.S.-Canada trade disagreement, some Canadian consumers reacted with informal boycotts of American products and trips. Canadian travelers, offended by tariff threats and rhetoric, “[mounted] strikes against America’s pocketbook by boycotting US goods and trips to the States.”​

While difficult to quantify, such sentiment-driven cutbacks underscore how trade disputes can dent cross-border leisure travel (e.g. fewer weekend shopping trips or vacations across the border). Similarly, any steep tariffs on Mexican goods could strain U.S.-Mexico relations and potentially discourage tourism in both directions if travelers feel economic tensions.

Impact of tariffs on tourism and hotel pricing

Hotel industry concerns: Within the U.S., hotel industry analysts and associations have closely watched tariff developments. Early in the U.S.–China tariff saga, most hoteliers hadn’t yet seen a major drop in bookings, but they grew anxious about the “negative anticipation” in the business climate​.

“So far, the effect of the Trump tariffs have been mild and indirect; however, that could change dramatically… The hotel industry rises and falls very quickly in response to GDP growth, and… negative anticipation [is] growing,”

noted Prism Hotels CEO Steve Van, emphasizing that uncertainty makes businesses pull back on travel spending​.

In other words, even before travel numbers shift, the fear of a trade war can curtail corporate trips and events.

Leaders of the American Hotel & Lodging Association (AHLA) echo that open trade and travel are linked. Chip Rogers, former President of AHLA, acknowledged tariffs add costs for hotels but framed them as “short-term pain for a broader economic policy” – essentially a cost of doing business​.

Still, industry groups like AHLA consistently support policies that promote inbound travel and caution against any measures that make the U.S. less competitive as a destination. The World Travel & Tourism Council (WTTC) has likewise flagged trade disputes as a risk.

Economic consequences for hotel pricing and traveler behavior

Trade wars don’t just shift traveler sentiment—they also hit hotels where it hurts most: operating costs and pricing power.

“When people think of tariffs, they usually default to the physical items that are being taxed and come at a higher cost – they frequently don’t, however, consider the ripple effects on the business that also rely on those physical products. Take the hospitality industry – higher prices on food, beverages, operating supplies, etc – those costs have to be absorbed somewhere. Sometimes they will find their way onto the owner’s P&L, but frequently, they will be passed onto the consumer – the traveler in the case of the hotel industry – in the form of higher rates, resort fees, etc.,” explains Blake Reiter Director of Hospitality Research at Lighthouse.

Tariffs can filter through the travel sector in two key ways: by raising hotel operating costs and by altering traveler spending patterns. First, hoteliers face higher prices for imported goods essential to their operations. This includes furniture, electronics, textiles, and food and beverage items.

 A tariff on imports from Mexico, for example, could affect the cost of produce, meat, and beverages served in hotel restaurants, ultimately squeezing profit margins.

Over the long run, owners or operators typically respond by increasing room rates or resort fees to offset these higher costs. While luxury hotels may maintain their rates and rely on a well-heeled clientele, mid-range and economy properties often feel more pressure to remain price-competitive. 

Any significant uptick in nightly rates could push cost-conscious guests to choose alternative accommodations, such as short-term rentals or budget hotels with minimal frills.

Tariffs can also affect traveler behavior by influencing disposable income and overall economic sentiment. If tariffs trigger reciprocal measures from trade partners, broader economic slowdowns can occur, reducing families’ discretionary spending on vacations. 

In the corporate world, an altered business climate may cause companies to rethink travel budgets. The ripple effect is that hotels in popular convention cities or near corporate hubs might experience lower occupancy or increased cancellation of large events.

Expert opinions on proposed new tariffs

In recent months, discussions of the new U.S. tariffs on Mexico and Canada have reignited concerns for hoteliers. Some leaders in border states warn that a 25% tariff would spark almost immediate retaliation, damaging industries reliant on cross-border commerce. 

Hoteliers are especially wary of the impact on supply costs and the potential for boycott campaigns.

“If the U.S. implements a 25% duty on anything coming from Mexico, Mexico will impose a 25% duty on anything coming from the United States,”

noted Joshua Rubin of the Nogales-Santa Cruz Port Authority, highlighting the risk of rapid retaliation​.

Mexican officials likewise cautioned that escalating tariffs would “put at risk [our] common businesses” on both sides of the border​ – which includes cross-border tourism and hotel stays.

In the past, The American Hotel & Lodging Association has noted that frequent travelers from Canada and Mexico are integral to the success of many properties, particularly in states like Texas, Arizona, California, Michigan, and New York. 

If tariffs strain diplomatic relations or hamper economic growth in neighboring countries, inbound tourism could slump. Industry analysts also note that, with the rise of remote work, certain visitors have more flexibility to choose cheaper or more welcoming destinations.

Pragmatic strategies for hoteliers

1. Cost management and operational efficiency: Implement energy-saving measures (such as smart thermostats, efficient lighting, and modern HVAC systems) and streamline staffing where possible without compromising service standards.

2. Value-added offerings: If certain operating costs rise, consider bundling amenities e.g. complimentary breakfast, parking, or late checkout. Bundle these into packages that justify a modest rate hike. Guests often appreciate perceived added value over bare-bones low rates.

3. Domestic marketing focus: Should inbound tourism from neighboring countries decline, shift marketing campaigns toward domestic travelers. Highlight driving-distance getaways, special weekend deals, or loyalty programs that entice local guests to book.

4. Monitor currency fluctuations: Keep track of exchange rates with key source markets. If the U.S. dollar weakens, it might be an opportunity to attract price-sensitive foreign travelers. Conversely, if it strengthens too much, consider targeted promotions to maintain international appeal.

5. Optimize distribution strategy: Review and refine your distribution mix to capture shifting demand patterns. Start by evaluating OTAs or metasearch platforms that are gaining popularity in your target markets. Strengthen your direct booking channels through targeted promotions to reduce acquisition costs. Finally, assess and adjust commission structures based on changing market conditions to ensure your distribution costs align with revenue goals.

6. Leverage AI to spot market changes: When market conditions shift, speed matters. Our AI-powered platform can help you identify changes in demand patterns, competitor pricing, and booking behavior. This allows you to adjust your commercial strategy quickly and confidently, ensuring you maintain revenue even as market dynamics change.

“In today’s rapidly shifting market, hotels that can quickly identify and respond to demand changes will have a significant advantage,” says Nadine Boettcher, Director of Product Innovation at Lighthouse. “AI isn’t about replacing hoteliers – it’s about enhancing their capabilities to make faster, more informed decisions in dynamic, shifting conditions.”

Conclusion

Tariffs have far-reaching consequences that can affect tourism, hotel pricing, and broader macroeconomics. When the cost of goods used in hotel operations increases, managers must choose whether to absorb expenses or pass them on to guests. At the same time, travelers sensitive to price changes or international tensions may simply change their plans, reducing demand.

In the face of potential new tariffs on Mexico and Canada, hoteliers should brace for possible cost hikes, supply chain disruptions, and shifts in traveler preferences. By managing costs carefully, diversifying sourcing, and enhancing value, properties can sustain profitability and remain attractive destinations, even in a volatile policy landscape.

About Lighthouse

Lighthouse (formerly OTA Insight) is the leading commercial platform for the travel & hospitality industry. We transform complexity into confidence by providing actionable market insights, business intelligence, and pricing tools that maximize revenue growth. We continually innovate to deliver the best platform for hospitality professionals to price more effectively, measure performance more efficiently, and understand the market in new ways.

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