U.S. President Donald Trump’s new 25% tariffs on imports from Mexico and Canada took effect Tuesday, alongside additional duties on Chinese goods, and the move has triggered trade wars that could hinder economic growth and drive up prices for Americans already struggling with prolonged high inflation.
The moves, which could upend nearly $2.2 trillion in annual trade, came after Trump declared that the top three U.S. trading partners had failed to do enough to stem the flow of fentanyl and its precursor chemicals into the U.S.
In an address to Congress, Trump said further tariffs would follow on April 2, including “reciprocal tariffs” and non-tariff actions aimed at balancing out years of trade imbalances.
“Other countries have used tariffs against us for decades, and now it’s our turn,” Trump said, citing high duties imposed on U.S. goods by India, South Korea, the European Union, China and others.
China’s foreign affairs ministry shot back defiantly: “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Commerce Secretary Howard Lutnick told reporters that U.S. officials had spoken with Mexico and Canada “all day” and might still work out a partial resolution with the two neighbours, adding that they needed to do more on the fentanyl front.
“I think there’ll be some movement. It will not eliminate the tariffs … but it might modify the tariffs somewhat,” he said, pointing to a decision on Wednesday.
Lutnick said Trump was considering providing some relief to companies that comply with rules under the U.S.-Mexico-Canada Agreement on trade that is due for renegotiation in 2026.
Trump hailed his tariff agenda, his efforts to curb the fentanyl overdose crisis and a Ukraine minerals deal during a nationally televised address to a joint session of Congress on Tuesday night.
Retaliation Starts
Canadian Prime Minister Justin Trudeau described the tariffs as “a very dumb thing to do” and hit back with 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles.
Mexican President Claudia Sheinbaum vowed retaliation but without details, saying she would announce Mexico’s response on Sunday.
Lutnick’s comments on negotiations lifted the Canadian dollar and the Mexican peso off of deep losses earlier on Tuesday, but Trump’s tariffs prompted a global stock sell-off.
China responded immediately, announcing additional tariffs of 10%-15% on certain U.S. imports from March 10 and a series of new export restrictions for designated U.S. entities. Later it raised complaints about the U.S. tariffs with the World Trade Organization.
Trudeau said Canada would impose tariffs on another C$125 billion of U.S. goods if Trump’s tariffs were still in place in 21 days, likely to include motor vehicles, steel, aircraft, beef and pork. Canada also will challenge the U.S. tariffs under the rules of the WTO and the U.S.-Mexico-Canada free trade agreement.
“They’ve chosen to launch a trade war that will, first and foremost, harm American families,” Trudeau said of the Trump administration after the 25% tariff came into effect.
Trudeau said that he believes Trump instead wants to weaken the Canadian economy to the point where Ottawa would consider annexation by the U.S.
Ontario Premier Doug Ford tore up a C$100 million contract with Elon Musk’s Starlink network, banned U.S. firms from provincial government contracts and said that if Trump’s tariffs persist, he will apply a 25% surcharge to Ontario electricity exports to the U.S.
“Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!” Trump wrote in a post on his private social media platform.
Price Hikes
The tariffs were already sparking some U.S. price increases, running counter to Trump’s election vow to bring down living costs for Americans.
Target CEO Brian Cornell told CNBC that the retail giant would increase prices “over the next couple of days” on some seasonal grocery products such as avocados from Mexico.
Electronics retailer Best Buy also warned of potential higher prices. The company’s CEO Corie Barry told analysts on a call that China remains the top source of products sold by the company, with Mexico in second place.
The 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smart phones, laptops, video game consoles, smart watches and speakers and Bluetooth devices.
“We estimate the tariffs could lead to a nearly $1,000 per household increase annually in the cost of goods,” said Nationwide Mutual chief economist Kathy Bostjancic. “The strengthening dollar helps mitigate some of the inflation impact, which would otherwise be greater.”
(With inputs from Reuters)
