U.S. President Donald Trump's long-threatened tariffs on imports from Canada and Mexico took effect on Tuesday, along with a doubling of duties on Chinese goods, unsettling global markets, initiating new conflicts with top three trading partners and setting the stage for costly retaliation.
Starting just past midnight, imports from Canada and Mexico, which have enjoyed a virtually tariff-free trading relationship with the U.S. for three decades, are now to be taxed at 25%, with Canadian energy products subject to 10% import duties.
The 10% tariff that Trump placed on Chinese imports in February was doubled to 20%, and Beijing retaliated Tuesday with tariffs of up to 15% on a wide array of U.S. farm exports. It also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen.
The tariff actions, which could upend nearly $2.2 trillion in two-way annual U.S. trade, went into effect hours after Trump declared that all three countries had failed to do enough to stem the flow of the deadly fentanyl opioid and its precursor chemicals into the U.S.
Canadian Prime Minister Justin Trudeau said his country would slap tariffs on more than $100 billion of American goods over the course of 21 days.
"Tariffs will disrupt an incredibly successful trading relationship," Trudeau said, adding that they would violate the U.S.-Mexico-Canada free trade agreement signed by Trump during his first term.
Mexican President Claudia Sheinbaum was expected to announce her response during a morning news conference in Mexico City on Tuesday, the country's Economy Ministry said.
The U.S. president's moves raised fears of higher inflation and the prospect of a devastating trade war even as he promised the American public that taxes on imports are the easiest path to national prosperity. He has shown a willingness to buck the warnings of mainstream economists and put his own public approval on the line, believing that tariffs can fix what ails the country.
"It's a very powerful weapon that politicians haven't used because they were either dishonest, stupid or paid off in some other form," Trump said Monday at the White House. "And now we’re using them."
The Canada and Mexico tariffs were supposed to begin in February, but Trump agreed to a 30-day suspension to negotiate further with the two largest U.S. trading partners.
The stated reason for the tariffs is to address drug trafficking and illegal immigration, and both countries say they've made progress on those issues. But Trump has also said the tariffs will only come down if the U.S. trade imbalance closes, a process unlikely to be settled on a political timeline.
The tariffs may be short-lived if the U.S. economy suffers. But Trump could also impose more tariffs on the European Union, India, computer chips, autos and pharmaceutical drugs. The American president has injected disorienting volatility into the world economy, leaving it off balance as people wonder what he'll do next.
"It's chaotic, especially compared to the way we saw tariffs rolled out in the first (Trump) administration," said Michael House, co-chair of the international trade practice at the Perkins Coie law firm. "It's unpredictable. We don't know, in fact, what the president will do."
The cumulative 20% duty on Chinese goods comes on top of tariffs of up to 25% imposed by Trump during his first term on some $370 billion worth of U.S. imports.
Some of these products saw U.S. tariffs increase sharply under former president Joe Biden last year, including a doubling of duties on Chinese semiconductors to 50% and a quadrupling of tariffs on Chinese electric vehicles to over 100%.
The 20% tariff will apply to several major U.S. consumer electronics imports from China previously untouched by prior duties, including smartphones, laptops, videogame consoles, smartwatches and speakers, and Bluetooth devices.
"Trying to exert extreme pressure on China is a miscalculation and a mistake," a Foreign Ministry spokesperson told a press conference in Beijing, adding that China had never succumbed to bullying or coercion.
China's new tariffs announced on Tuesday targeted a wide range of U.S. agricultural products including certain meats, grains, cotton, fruit, vegetables and dairy products.
Beijing also placed 25 U.S. firms under export and investment restrictions on national security grounds. Ten of these firms were targeted for selling arms to Taiwan.
China's Commerce Ministry said the U.S. tariffs violated World Trade Organization (WTO) rules and "undermine the basis for economic and trade cooperation between China and the U.S."
U.S. farmers were hard hit by Trump's first-term trade wars, which cost them about $27 billion in lost export sales and conceded a share of the Chinese market to Brazil.
Democratic lawmakers were quick to criticize the tariffs, and even some Republican senators raised alarms.
Senator Susan Collins said she's "very concerned" about the tariffs going into effect because of her state's proximity to Canada.
"Maine and Canada's economy are integrated," Collins said, explaining that much of the state’s lobsters and blueberries are processed in Canada and then sent back to the U.S.
The world economy is now caught in the fog of what appears to be a trade war.
Even after Trump announced Monday that the tariffs were going forward, Canadian officials were still in touch with their U.S. counterparts.
"The dialogue will continue, but we are ready to respond," Canadian Defense Minister Bill Blair said in Ottawa as he went into a special Cabinet meeting on U.S.-Canada relations. "There are still discussions taking place."
Shortly after Blair spoke, Trudeau said Canada would impose 25% tariffs on CA$155 billion ($107 billion) worth of American goods, starting with tariffs on CA$30 billion Canadian worth of goods immediately and on the remaining amount on American products in three weeks.
"Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures," Trudeau said.
The White House would like to see a drop in seizures of fentanyl inside the United States, not just on the northern and southern borders. Administration officials say that seizures of fentanyl last month in everywhere from Louisiana to New Jersey had ties to foreign cartels.
Damon Pike, technical practice leader for customs and trade services at the tax and consulting firm BDO, suggested the responses of other countries could escalate trade tensions and possibly increase the economic pressure points.
"Canada has their list ready," Pike said. "The EU has their list ready. It's going to be tit-for-tat."
The Trump administration has suggested inflation will not be as bad as economists claim, saying tariffs can motivate foreign companies to open factories in the United States. On Monday, Trump announced that Taiwan Semiconductor Manufacturing Company, the computer chipmaker, would be investing $100 billion in domestic production.
Still, it can take time to relocate factories spread across the world and train workers with the skills they need.
Greg Ahearn, president and CEO of The Toy Association, said the 20% tariffs on Chinese goods will be "crippling" for the toy industry, as nearly 80% of toys sold in the U.S. are made in China.
"There's a sophistication of manufacturing, of the tooling," he said. "There’s a lot of handcrafting that is part of these toys that a lot of people don’t understand ... the face painting, the face masks, the hair weaving, the hair braiding, the cut and sew for plush to get it to look just so. All of that are very high hands, skilled labor that has been passed through generations in the supply chain that exists with China."
For a president who has promised quick results, Ahearn added a note of caution about how quickly U.S. factories could match their Chinese rivals.
"That can't be replicated overnight," he said.
Trump has maintained a blistering pace of tariff actions since taking office in January, including fully restoring 25% tariffs on steel and aluminum imports that take effect March 12, rescinding prior exemptions.
He has also signed plans for sweeping "reciprocal tariffs" that could hit both allies and adversaries.
Trump's "America First" agenda, aimed at redrawing trade relationships in favor of the U.S., is expected to be a centerpiece of his Tuesday night address to a joint session of Congress.
Trump on Saturday opened a national security investigation into imports of lumber and wood products that could result in steep tariffs. Canada, already facing 14.5% U.S. tariffs on softwood lumber, would be hit particularly hard.
A week earlier, Trump revived a probe into countries that levy digital services taxes, proposed fees of up to $1.5 million on every Chinese-built ship entering a U.S. port and launched a tariff investigation into copper imports.
These add to his plans for higher "reciprocal tariffs" to match the levies of other countries and offset their other trade barriers, a move that could hit the European Union hard.
The EU on Tuesday urged the U.S. to reverse course, warning that its tariffs on Canada and Mexico threaten trans-Atlantic "economic stability" and risk "disrupting global trade."
"These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic," European Commission spokesperson Olof Gill said in a statement.
He noted that Mexico and Canada are the European Union's economic partners through two separate agreements. In January, the EU announced that it would strengthen its trade relations with Mexico, an upgrade that had been eight years in the making.
Brussels has vowed to retaliate to additional U.S. duties with firm and proportionate countermeasures.
"The EU stands firmly against protectionist measures that undermine open and fair trade. We call on the United States to reconsider its approach and work towards a cooperative, rules-based solution that benefits all parties," Gill added.
