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.
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.
“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.
The tariffs come at a time when inflation remains problematic. Americans, and the US economy as a whole, are on shakier ground, as evidenced by recent data.
The 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 face a 10% tariff.
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%.
China, Canada retaliate
Beijing retaliated on Tuesday by announcing 15% tariffs on chicken, wheat, corn, and cotton, 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,” took effect, it said.
Hours ahead of the tariffs taking effect, Canadian Prime Minister Justin Trudeau said Ottawa would immediately respond with tariffs on $30 billion of US goods. By March 25, he said Canada would impose an additional $125 billion tariff on American goods.
“Canada will not let this unjustified decision go unanswered,” he said in a statement.
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. But in some cases, they may opt to, or be forced to, absorb the higher costs.
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 and 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,” National Foreign Trade Council vice president for global trade policy Tiffany Smith said in a statement Monday.
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 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.