WASHINGTON: President Donald Trump unleashes the first salvo of his tariff war, with general levies of 25% on Canada and Mexico and 10% on China – the start of a wave of promised trade barrages against foreign allies and adversaries alike.
Trump signed orders for the tariffs last Saturday, according to White House officials who briefed reporters on condition of anonymity.
The tariffs take effect at 12.01am tomorrow, and it’s unclear if that offers a last-chance window for a deal.
They apply to a wide range of goods from three of the biggest US trading partners.
Canada and Mexico announced their own plans for retaliatory tariffs on the United States.
Prime Minister Justin Trudeau said Canada will respond by placing 25% counter-tariffs on C$155bil worth of American-made products, while Mexico’s President Claudia Sheinbaum said she instructed the economy minister to kick off a response plan that includes retaliatory tariffs against the levies.
Trump’s orders also included retaliation clauses that would increase US tariffs if the countries respond in kind.
The new measures will be on top of existing trade levies on those countries.
Trump’s tariffs deliver on a threat to punish the three countries for what he said is a failure to prevent the flow of undocumented migrants and illegal drugs, though he also teased the possibility of a reprieve if Mexico and Canada took steps to address his concerns.
Energy imports from Canada including oil and electricity, will be spared from the full 25% levy and will face a 10% tariff.
The White House officials said that was intended to minimise upward pressure on gasoline and home-heating oil prices.
The move is explosive in scale and goes well beyond Trump’s first-term tariffs.
They all but abandon the trade deal he negotiated with Canada and Mexico in his first term and will raise the cost of key goods, like food, housing and gasoline for Americans, while the overall fallout threatens to spill widely across the countries, which are the largest three sources of US imports, accounting for almost half of total volume.
Trump campaigned on a platform of extensive tariffs and he followed through, though dialing back his planned measures on China while increasing it on his neighbours.
Most mainstream economists and many business groups warn that trade levies will disrupt supply chains, raise prices for consumers already wary of inflation and reduce global trade flows.
The orders last Saturday curtailed so-called de minimis exemption for small parcels and packages sent to the United States from the three countries, effectively applying tariffs more widely to small shipments and potentially impacting eCommerce and online retailing, though the scope of the measure wasn’t immediately clear. The United States loses a tremendous amount of tariff revenue by using the exemption, a US official told reporters on a briefing call.
The measures Trump is taking will have particularly stark implications for the auto and energy sectors.
Auto interests warned that because of the tight integration of United States and Canadian manufacturing, the tariffs could have steep impacts on the industry.
“The imposition of tariffs will be detrimental to American jobs, investment and consumers,” Autos Drive America president Jennifer Safavian said in an emailed statement.
“US automakers would be better served by policies that reduce barriers for manufacturers, ease regulations that hinder production and create greater export opportunities.”
Under an energy emergency Trump declared on his first day in office, affected products given that lower 10% tariff also include refined gasoline and diesel, uranium, coal, biofuels and critical minerals.
Parts of the United States, including the Pacific Northwest and Northeast US, are deeply reliant on electricity or gas flows from Canada.
Additionally, oil industry advocates have warned against even a 10% increase in the cost of crude inputs into Midwestern refineries that have few near-term options to substitute with US supplies.
Mexico will also implement non-tariff measures, while calling for cooperation with the United States on topics including security and addressing the fentanyl public health crisis, she said in a post on X.
The Mexican economy could enter a ‘severe recession’ if Trump’s tariffs remain in place for more than a quarter, according to Grupo Financiero Base economic analysis director Gabriela Siller.
“If the tariffs last several months, the Mexican peso depreciation could reach record highs.”
Also, US tariffs could freeze new foreign direct investment in Mexico, she added.
Democrats wasted no time in pouncing on messaging around how the latest trade moves could impact families budgets.
“These tariffs will be devastating for American consumers,” Congressman Greg Stanton, an Arizona Democrat, and some 40 colleagues wrote in a Saturday letter.
“Trump’s tariffs on Mexico and Canada will make your life more expensive,” Stanton said more bluntly in a separate post on X.
Meanwhile, Republican support has been muted at best.
The party’s free-trade wing has all but bowed to Trump’s penchant for tariffs.
Outliers like Senator Rand Paul have signalled concern, as has Maine Senator Susan Collins, a key moderate.
But, amid scant blowback from his party, Trump has barrelled ahead.
The move represents yet another instance where Trump is testing the bounds of his emergency authorities under federal law – already a hallmark of his second term in the White House.
Trump’s tariff orders last Saturday invoke the International Emergency Economic Powers Act and expand an earlier declaration rooted in the National Emergencies Act to address what he calls a ‘threat to the safety and security of Americans, including the public health crisis of deaths due to the use of fentanyl’.
Markets have been gripped by uncertainty as they awaited Trump’s decision on the tariffs and there are looming questions about how the levies will impact stocks.
In the 10 days since Trump’s initial tariff threat on his first full day in office, the S&P 500 Index was essentially flat while equity benchmarks in Europe, Canada and Mexico were all higher.
The Nasdaq Golden Dragon Index – composed of companies that do business in China but trade in the United States – jumped more than 4%.
Automakers such as General Motors Co, Ford Motor Co and Stellantis NV, which have global supply chains and massive exposure to Mexico and Canada, could see significant swings.
Officials on the call Saturday justified the tariffs by citing the flow of fentanyl and other illegal drugs across the border, as well as illegal immigration.
“Lashing out at key allies like Canada is not the way forward,” United Steelworkers union president David McCall said in a statement. “Our union calls on President Trump to reverse course on Canadian tariffs.” — Bloomberg
