President Donald Trump’s decision to impose a 25% tariff on imports from Mexico and Canada officially took effect on Tuesday. This major move is meant to pressure America’s top trading partners but also carries the risk of hurting the North American economy, including the United States, at a time when inflation is already a problem for many consumers.
Trump also doubled tariffs on all Chinese imports, increasing them from 10% to 20%. These tariffs add to existing taxes on hundreds of billions of dollars’ worth of Chinese goods. In response, both China and Canada immediately hit back with their own tariffs on American products, increasing the chances of a trade war. Mexico has announced that it will reveal its own countermeasures on Sunday.
The Trump administration argues that these tariffs are necessary to stop the flow of fentanyl into the United States.
“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,” the White House said in a statement shortly before the tariffs took effect.
However, the tariffs come at a time when inflation in the United States is already high. Many Americans are struggling with rising prices, and these new trade policies could make things even worse.
Prices Will Go Up on Many Everyday Goods
The new tariffs will make products imported from Canada, Mexico, and China more expensive. In 2023, the United States imported $1.4 trillion worth of goods from these three countries, making up over 40% of all U.S. imports, according to the Commerce Department.
Canadian energy exports, like crude oil, will not face the full 25% tariff but will still be taxed at 10%. Meanwhile, common goods such as fresh produce, cars, car parts, electronics, phones, and computers from Mexico, Canada, and China will now face tariffs between 20% and 25%.
The stock market reacted negatively to these tariffs. On Tuesday morning, global car manufacturers that rely on production in Mexico saw their stock prices drop. Germany’s Volkswagen fell by nearly 4%, while Stellantis, the company behind Chrysler and Jeep, saw its stock price decline by almost 7%.
China and Canada Respond Swiftly—Mexico is Next
China responded on Tuesday by imposing 15% tariffs on U.S. imports of chicken, wheat, corn, and cotton, according to the State Council Tariff Commission. A 10% tariff was also placed on other American products, including soybeans, pork, beef, dairy, fruits, and vegetables.
Additionally, China’s Ministry of Commerce placed 15 U.S. companies, including drone maker Skydio, on its export control list. This means these companies can no longer receive certain Chinese-made equipment.
Alfredo Montufar-Helu, head of the China Center for the Conference Board, said China’s counter-tariffs were “restrained” and “targeted,” focusing on industries that are important to Trump’s supporters while leaving room for negotiations.
Chinese Foreign Ministry spokesperson Lin Jian made it clear that China is prepared for a prolonged conflict.
“China will fight till the end” if the U.S. “insists on waging a tariff war, trade war or any other kind of war,” he said.
“I want to reiterate that the Chinese people have never feared evil or ghosts, nor have we ever bowed to hegemony or bullying. Pressure, coercion, and threats are not the right ways to engage with China. Trying to exert maximum pressure on China is a miscalculation and a mistake,” Lin added.
China also announced additional trade restrictions, including halting lumber imports from the U.S., suspending soybean export permits for three American companies, and launching an anti-dumping investigation into American fiber optic products.
Canada Takes Action
Canadian Prime Minister Justin Trudeau responded on Tuesday, announcing a 25% tariff on C$30 billion ($20.7 billion) worth of U.S. goods, with even more tariffs totaling C$125 billion ($86.2 billion) set to take effect in 21 days.
“This is a very dumb thing to do,” Trudeau said, referring to Trump’s tariffs. “We two friends fighting is exactly what our opponents around the world want to see.”
Canada’s tariffs will target U.S. dairy products, meat, grains, beer, wine, motorcycles, cosmetics, and paper products.
Trudeau also announced that Canada would file complaints with the World Trade Organization (WTO) and under the U.S.-Mexico-Canada Agreement (USMCA).
“In the meantime, our tariffs will remain in place until the U.S. tariffs are withdrawn and not a moment sooner,” he said.
Ontario Premier Doug Ford warned that Canada could take even more aggressive steps, including cutting off energy supplies to the U.S. if the tariffs remain in place.
“If they want to try to annihilate Ontario, I will do everything, including cut off their energy, with a smile on my face,” Ford told reporters. “And I’m encouraging every other province to do the same.”
Mexico Plans Its Own Response
Mexican President Claudia Sheinbaum confirmed on Tuesday that she would announce retaliatory tariffs against American imports on Sunday. She also said she planned to have a phone call with Trump on Thursday.
“The unilateral decision made by the United States affects national and foreign companies operating in our country, as well as our people,” she said at a press conference in Mexico City.
“No one benefits from this decision,” she added.
Impact on the U.S. Economy
While the U.S. economy remains strong, there are warning signs. A recent Bureau of Economic Analysis report showed consumer spending unexpectedly declined in January. Inflation is still rising, putting pressure on American families.
Consumer confidence is also dropping, with Americans feeling less optimistic about the economy than in previous years. This is concerning because consumer spending accounts for more than two-thirds of the U.S. economy.
Friday’s job report is expected to show slower growth. Meanwhile, unemployment claims are increasing, and the Trump administration’s layoffs of thousands of federal workers could disrupt local economies. Federal spending cuts may also limit access to critical services.
Tiffany Smith, Vice President for Global Trade Policy at the National Foreign Trade Council (NFTC), warned that these new tariffs could cause harm.
“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,” she said.
She added that while the NFTC supports efforts to address illegal activities at the borders, they are “deeply concerned” that these tariffs will “raise costs for American businesses and consumers and undermine U.S. economic growth.”
More Tariffs Could Be Coming
Trump has suggested that these tariffs might just be the beginning. On Tuesday, he responded to Trudeau’s comments by threatening even harsher tariffs.
“Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount,” Trump wrote on Truth Social.
Additional tariffs on steel and aluminum are set to take effect on March 12, with reciprocal tariffs starting April 2. Trump has also ordered an investigation into lumber tariffs, which could further increase housing costs in the U.S.
For now, businesses and consumers across North America are preparing for what comes next.
