WASHINGTON – President Donald Trump followed through on his threat to impose sweeping tariffs on Canada and Mexico and doubled an existing levy on China, prompting swift retaliation that deepened the global trade war.
The new U.S. tariffs – 25% on most Canadian and Mexican imports and an increase on China to 20% – apply to about $1.5 trillion in annual imports. The move signals to markets that the Republican president is willing to inflict economic pain to generate revenue and boost domestic manufacturing jobs.
Canada retaliated with phased tariffs on $107 billion in U.S. goods, while China imposed levies of up to 15%, primarily targeting American agricultural exports. Canadian Prime Minister Justin Trudeau called the trade war “a very dumb thing to do.
“What he wants is to see a total collapse of the Canadian economy because that’ll make it easier to annex us,” Trudeau said at a news conference. “They’ve chosen to launch a trade war that will first and foremost harm American families. They’ve chosen to sabotage their own agenda that was supposed to usher in a new golden age for the United States.”
Mexican President Claudia Sheinbaum said her government would announce tariffs and other measures on Sunday in response to Trump’s new charges. She expects to speak with Trump on Thursday.
Economic and diplomatic reset
The tariffs, imposed ahead of Trump’s prime-time address to Congress outlining his second-term priorities, mark a shift in his economic and diplomatic policy. The move confirms Trump’s willingness to disrupt global economic ties in response to what he views as unfair trade practices.
Stocks fell sharply amid concerns about the trade war’s economic impact. The S&P 500 dropped nearly 2% by 11:44 a.m. on Tuesday, erasing $3.4 trillion in market gains since the election.
“We are in a new era where the focus is protecting markets, and the U.S. is leading,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. “China retaliated by targeting Trump’s strongest supporters in agriculture. But that won’t stop him.”
Treasury Secretary Scott Bessent downplayed the market selloff.
“Over the medium term, we’re focused on Main Street. Wall Street has done great and will continue to do fine, but we prioritize small businesses and consumers,” Bessent said on Fox News.
The tariffs push U.S. import duties to their highest average level since 1943, according to the Budget Lab at Yale. Households could face up to $2,000 in additional costs. Slower economic growth is also likely, especially if other nations retaliate, according to a report published on Monday.
“The first weeks of Trump’s presidency showed that policies shift based on concessions countries make,” Maeva Cousin and Rana Sajedi of Bloomberg Economics wrote in a research note. “But if these tariffs remain, the impact will be significant.”
More to come
Trump has indicated additional tariffs are planned, including reciprocal duties in April on all trading partners with existing levies or trade barriers on U.S. products. A 25% tax on cars, semiconductors and pharmaceuticals is also expected, with these tariffs set to be cumulative.
Trump has also proposed a 25% tariff on European Union goods and is considering levies on copper and lumber. Steel and aluminum tariffs are scheduled to take effect on March 12, further affecting Canada and Mexico.
European Commission spokesman Olof Gill warned the U.S. decision could disrupt global trade and create economic uncertainty. “These tariffs threaten deeply integrated supply chains, investment flows and economic stability across the Atlantic,” he said in an emailed statement.
Ahead of the deadline, U.S. stocks fell the most this year, Treasury yields dropped to a four-month low, and oil prices hit a three-month low.
Canada’s first stage of retaliation includes 25% tariffs on C$30 billion ($20.6 billion) in U.S. goods, taking effect alongside U.S. levies. A second phase, covering C$125 billion in products, follows in three weeks, targeting high-value items such as cars, trucks, steel and aluminum.
Reciprocal charges
Commerce Secretary Howard Lutnick signaled more tariffs on Canada are likely, citing objections to its dairy tariffs, national sales tax and integrated auto supply chains. These factors will be considered when calculating reciprocal U.S. charges.
“He will address all of those products in Canada,” Lutnick said on CNBC. “That reset begins April 2.”
Trump reiterated criticism of restrictions on American banks in Canada, reinforcing his stance.
The 25% tariffs cover all imports from Canada and Mexico, except Canadian energy, which is taxed at 10%. The auto industry, with supply chains spanning all three countries, faces particular disruption.
However, the Trump administration delayed the removal of the “de minimis” exemption for low-cost goods until a revenue collection plan is in place. For now, Canadians and Mexicans can continue shipping low-cost goods tariff-free.
Trump initially announced tariffs on North America and China in February, aiming to penalize them for failing to curb undocumented migration and illegal drug flows, including fentanyl. While a 10% levy on Chinese imports took effect last month, Trump delayed Canada and Mexico’s tariffs until March 4 to allow for negotiations. The delay ended with full implementation.
“Both nations’ failure to arrest traffickers, seize drugs or coordinate with U.S. law enforcement constitutes an unusual and extraordinary threat to America’s security,” the White House stated as the tariffs took effect.
The move casts doubt on Trump’s trade pact with Canada and Mexico, risking further economic strain and renewed inflation concerns.
‘Measured’ measures
In response, China imposed tariffs up to 15% on U.S. goods and banned exports to select defense firms. The Ministry of Finance announced soybeans, beef and fruit face 10% levies.
“The measures remain measured for now,” said Lynn Song, Greater China chief economist at ING Bank. “This response shows China’s patience despite the recent escalation.”
China also halted U.S. log imports after detecting pests and blocked soybeans from three U.S. companies, according to government statements.
Trump has expressed interest in speaking with Chinese President Xi Jinping, but no talks have occurred a month after he raised the possibility of a deal.
The tariffs are a political risk for Trump, who was elected partly on economic dissatisfaction. Polls indicate voters want stronger efforts against inflation.
Trump dismissed economists’ warnings that tariffs could fuel price hikes and fail to generate the expected revenue. His administration is also seeking to offset concerns about the cost of a multi-trillion-dollar tax cut package in Congress.
