US President Donald Trump delivered on his threat to hit Canada and Mexico with sweeping import levies and doubled an existing charge on China, spurring swift reprisals that plunged the world economy into a deepening trade war.
The new US tariffs — 25% duties on most Canadian and Mexican imports and raising the charge on China to 20% — apply to roughly US$1.5 trillion ($2.01 trillion) in annual imports, an expansive move signalling to markets that the Republican president is committed to inflicting economic pain to generate fresh revenue and create domestic manufacturing jobs.
Canada hit back with phased levies on US$107 billion worth of US goods while China imposed tariffs of as high as 15%, mainly on American agricultural shipments. Mexican President Claudia Sheinbaum on Monday said her government would await Trump’s decision before reacting with any retaliatory measures and is expected to address reporters on Tuesday morning local time.
The moves — before a prime-time address Tuesday to Congress to lay out his second-term priorities — mark a new phase in Trump’s broadening economic and diplomatic reset of America’s place in the world. Confirmation of the levies lays to rest doubts the US president would actually follow through on his repeated threats to upend global economic ties to counter what he casts as imbalanced trade.
Equities across Asia and Europe fell, and US futures pointed to a flat open.
“We are in a new era where the mantra is to protect markets and the US is leading in this,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. “China retaliated focusing on Trump’s staunchest voters in the agriculture sector. But that is not going to stop him.”
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The tariffs bring American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale. That would lead to as much as US$2,000 in additional costs for US households. It also will mean significantly slower economic growth in the US, especially if other countries retaliate, according to a report published Monday.
“The lesson of the first few weeks of Trump’s presidency is that these things can change depending on the concessions countries are willing to make,” Maeva Cousin and Rana Sajedi of Bloomberg Economics wrote in a research note Tuesday. “But if they endure, the impact will be significant.”
More to come
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And Trump has indicated more tariffs are to come, including in April reciprocal tariffs on all US trading partners that have their own levies or other barriers on American products, as well as sectoral taxes of 25% on cars, semiconductors and pharmaceuticals. Those tariffs are also poised to be cumulative — in addition to any across-the-board tariff on a particular nation.
Trump has also said a 25% tariff is in the works for the European Union and is investigating levies on copper and lumber imports. Steel and aluminium tariffs are also set to take effect on March 12, further impacting Canada and Mexico.
European Commission spokesman Olof Gill said the US’s decision threatens to disrupt global trade, hurt economic partners and cause uncertainty. “These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic,” he said in an emailed statement.
In the run-up to the deadline, US equities tumbled by the most this year, while Treasury yields earlier fell to the lowest in four months and oil dropped to a three-month low.
The Canadian government’s first stage of retaliation was 25% tariffs on about C$30 billion ($27.88 billion) worth of goods from US exporters to go into effect at the same time as the US levies. A second round at the same rate will be placed on C$125 billion of products in three weeks — a list that will include big-ticket items like cars, trucks, steel and aluminium.
“Canada will not let this unjustified decision go unanswered,” Prime Minister Justin Trudeau said in a statement. The retaliation plan is the same as the one he announced in February after Trump signed his executive order for broad tariffs.
The 25% tariffs taking effect apply to all imports from Canada and Mexico, except for Canadian energy which will be taxed at a 10% rate. Trump’s Canada and Mexico tariffs will have particularly stark implications for the auto sector, an industry with supply chains that crisscross the three countries.
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Trump’s administration did, however, delay the removal of a so-called “de minimis” exemption for low-cost goods until they develop a plan for collecting revenue on those imports. That means that, for now, Canadians and Mexicans can continue to ship low-cost goods across the border without a tariff.
Trump initially announced tariffs on the North American neighbours and China in February, intended to punish them for what he cast as a failure to block flows of undocumented migrants and illegal drugs, such as fentanyl, across US borders. But while a 10% levy on Chinese imports took effect last month, Trump delayed import taxes on Canada and Mexico until March 4 — giving them time to negotiate a reprieve. That let off didn’t last.
“Both nations’ failure to arrest traffickers, seize drugs, or coordinate with US law enforcement constitutes an unusual and extraordinary threat to America’s security,” the White House said in a fact sheet as the tariffs went into effect.
It leaves uncertain the fate of a trade pact Trump negotiated with Canada and Mexico in his first term and risks further straining the US economy and rekindling still simmering inflation.
‘Measured’ measures
In response, China imposed tariffs as high as 15% on US goods and banned exports to some defense companies in retaliation to the Trump administration’s new levy. Soybeans, beef and fruits are among products facing a 10% tariff, according to an announcement from the Ministry of Finance.
“The measures are still relatively measured for now,” said Lynn Song, chief economist for Greater China at ING Bank. “This retaliation shows China remains patient and has refrained from ‘flipping the table’ so to speak despite the recent escalation.”
China also on Tuesday halted imports of logs from the US after pests were detected in US imports, according to a statement, as well as blocking soybeans from three US companies, according to a separate statement.
Trump has signalled a desire to speak with Chinese leader Xi Jinping, but they have yet to talk a month after the US president raised the possibility of a call to negotiate a deal.
The new tariffs are a risky gambit for a president elected in part on dissatisfaction with his predecessor’s handling of the economy amid polls showing voters want Trump to do more on countering inflation.
Trump has dismissed warnings from economists that tariffs threaten to fuel price growth and will fail to bring in the revenue the president and allies have predicted as they look to assuage concerns about the cost of a tax cut package in Congress costing trillions.
