President Donald Trump’s blanket 25% tariffs on Mexico and Canada took effect on Tuesday, an extraordinary action aimed at bringing America’s top trading partners to heel.
But it threatens to weaken the North American economy, including that of the United States, at a time of significant stress for inflation-weary consumers.
Trump also doubled the tariff on all Chinese imports to 20% from 10%. Those duties sit atop existing tariffs on hundreds of billions in Chinese goods. China and Canada immediately retaliated with tariffs on American goods, threatening to ignite a damaging trade war. Mexico said it would announce retaliatory measures on Sunday.
The Trump administration said the tariffs were necessary to stem the flow of fentanyl into the United States.
“While President Trump gave both Canada and Mexico ample opportunity to curb the dangerous cartel activity and influx of lethal drugs flowing into our country, they have failed to adequately address the situation,” according to a statement released by the White House shortly before the tariffs took effect.
But the tariffs come at a time when inflation remains stubbornly high. Americans, and the US economy as a whole, are on shakier ground, as evidenced by recent data.
Tariff Impact on US Consumers and Markets
Trump’s tariffs threaten to raise the prices Americans pay for a wide array of goods that are imported from the three nations, which collectively shipped $1.4 trillion worth of goods to the US last year, according to Commerce Department data. That accounts for more than 40% of the value of all goods the US imported last year.
The only goods that won’t face a 25% tariff from Canada are energy-related items such as crude oil, one of the top goods the US imports from there. Instead, they’ll be subject to a 10% tax.
Fresh produce, cars and car parts, and electronics—including phones and computers—are among the top goods the US imports from Mexico, Canada, and China that will now face tariffs between 20% and 25%.
The stocks of global carmakers that have plants in Mexico fell sharply on Tuesday morning. Germany’s Volkswagen dropped almost 4% by 5:46 a.m. ET, while Stellantis (STLA) — the maker of Chrysler and Jeep — fell nearly 7%.
China and Canada Hit Back; Mexico is Next
Beijing retaliated on Tuesday by announcing 15% tariffs on chicken, wheat, corn, and cotton imports from the US, according to a statement from the State Council Tariff Commission.
Additionally, a 10% tariff on “sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products” was also imposed, it said.
Separately, China’s Ministry of Commerce said it added 15 American companies, including drone maker Skydio, to its export control list, which would bar Chinese companies from exporting dual-use equipment to them.
China’s retaliatory tariffs followed a “restrained, targeted approach aimed at causing pain to those industries that matter the most to the supporters of the Trump administration,” said Alfredo Montufar-Helu, head of the China Center for the Conference Board. He noted China’s tariffs give it room for negotiations to potentially avoid even more damaging tariffs down the road.
Speaking at a regular briefing on Tuesday, Lin Jian, a spokesperson for China’s Foreign Ministry, said:
“China will fight till the end” if the US “insists on waging a tariff war, trade war, or any other kind of war.”
“I want to reiterate that the Chinese people have never feared evil or ghosts, nor have we ever bowed to hegemony or bullying. Pressure, coercion, and threats are not the right ways to engage with China. Trying to exert maximum pressure on China is a miscalculation and a mistake,” he added.
Canada’s Response
In Canada, Prime Minister Justin Trudeau said hours before the tariffs took effect that Ottawa would immediately respond with tariffs on C$30 billion ($20.7 billion) of US goods. By March 25, he said Canada would impose an additional C$125 billion ($86.2 billion) tariff on American goods.
“Canada will not let this unjustified decision go unanswered,” Trudeau said in a statement.
The premier of Ontario, Canada’s largest province, has also repeated his earlier threat to cut off the energy supply to the US in response to Trump’s tariffs.
Despite Trump’s prior claims that exporters pay for tariffs, it’s actually the parties receiving goods from abroad that pay the tariff upfront. Those parties, often businesses, typically then pass on the additional tariff costs to consumers by raising prices. In some cases, they may opt to—or be forced to—absorb the higher costs.
Mexico’s Response
Mexico’s President Claudia Sheinbaum said on Tuesday morning that she would announce retaliatory tariffs on American imports into Mexico, as well as non-tariff measures, on Sunday. She said she will probably have a call with Trump on Thursday.
“The unilateral decision made by the United States affects national and foreign companies operating in our country, as well as our people,” she said at a press conference in Mexico City.
“No one benefits from this decision,” she added.
Economic Impact
Although America’s economy remains resilient, tariffs come during a time of increasing cracks in the foundation. A Bureau of Economic Analysis report Friday showed consumer spending unexpectedly fell in January, and a recent inflation report showed consumer prices rebounded in January while inflation continues to grow at a stubbornly high pace.
Meanwhile, consumer confidence fell the most to start a year since 2009, and a separate consumer sentiment report last month registered the biggest decline since records began in 1978.
That’s a problem because consumer spending makes up more than two-thirds of America’s economic activity.
Friday’s jobs report is expected to show growth continues to stagnate. First-time applications for jobless benefits ticked up more than expected last week, and the Trump administration is laying off thousands of federal workers, potentially disrupting local economies. Federal spending has also been curtailed, turning off access to some people’s livelihoods and services.
Trump’s immigration crackdown also threatens homebuilding, agriculture, and other key industries.
“Imposing tariffs on Canada and Mexico threatens to chill a collaborative effort to strengthen our shared border and risks starting a trade war with America’s closest trading partners,” said Tiffany Smith, Vice President for Global Trade Policy at the National Foreign Trade Council (NFTC).
Smith said NFTC, a trade organization, supports the Trump administration’s goal “to address illicit activity at our borders.” However, they are “deeply concerned” by the new tariffs, which they claim will “raise costs for American businesses and consumers and undermine US economic growth.”
More to Come?
Trump and his administration have suggested that the latest round of tariffs, though significant, are only the beginning.
Steel and aluminum tariffs are set to go into effect on March 12. And reciprocal tariffs, dollar-for-dollar tariffs that match what other countries impose on US goods, are expected to go into effect on April 2.
Meanwhile, Trump keeps hinting at more tariffs to come. Last week, Trump signed an executive order to investigate lumber tariffs. Although he has long suggested America doesn’t need Canadian lumber, the tariff threatens to raise the prices of new homes, a key inflation driver for American families.
Trump also hinted Monday that he would impose tariffs on agricultural imports in an attempt to boost domestic sales. Such tariffs would go into effect on April 2, he said in a Truth Social post.
(Source: CNN)
