Donald Trump Imposes New Tariffs on Canada, Mexico, and China; Retaliation Expected

Donald Trump Imposes New Tariffs on Canada, Mexico, and China; Retaliation Expected

U.S. President Donald Trump has launched a fresh wave of tariffs, imposing a 25% levy on imports from Canada and Mexico and a 10% tariff on goods from China. The move, effective from February 4, marks the beginning of a broader trade conflict that could have significant economic consequences.

In 2024, the US imports approximately $466 billion from Mexico and $377 billion from Canada, with 75% of its crude oil imports coming from Canada. Tariffs are typically paid by the importing company, not the exporting country, often leading to higher consumer prices to maintain profit margins.

Sweeping Tariffs and Their Impact

Trump signed the orders on Saturday, according to White House officials. The new tariffs apply to a wide range of goods from three of the U.S.’s largest trading partners, covering almost half of total U.S. imports. The decision signals a major departure from the trade agreements negotiated in his first term, particularly the U.S.-Mexico-Canada Agreement (USMCA).

The tariffs include a clause that allows for an increase if any of the targeted countries retaliate. Canada has already announced plans to impose countermeasures. Trump has justified the tariffs as a response to illegal immigration and drug trafficking, particularly the flow of fentanyl into the U.S.

Energy and Auto Sectors Affected

To limit the impact on energy prices, certain Canadian imports such as oil, electricity, and refined fuels will face a lower 10% tariff instead of 25%. However, experts warn that even this reduced rate could drive up gasoline and heating oil costs in regions like the Northeast and Pacific Northwest, which rely heavily on Canadian energy.

The U.S. auto industry is also expected to suffer due to the deeply integrated manufacturing networks between the U.S., Canada, and Mexico. Jennifer Safavian, president of Autos Drive America, criticized the move, saying it will hurt American jobs, investment, and consumers. Car manufacturers such as General Motors, Ford, and Stellantis, which depend on cross-border supply chains, could face major disruptions.

Restrictions on E-commerce and Small Shipments

Another significant measure in the tariff order is the restriction of the de minimis exemption, which previously allowed small parcels from Canada and China to enter the U.S. without hefty duties. The new rule could impact e-commerce businesses and online retailers by increasing costs for consumers and small businesses.

Political and Economic Reactions

While some Republicans have expressed concerns about the tariffs, opposition within Trump’s party has been limited. Free-trade advocates such as Senator Rand Paul and moderate Republican Senator Susan Collins have voiced criticism, but broader resistance has been weak.

Economic analysts warn that the tariffs could push Mexico into a deep recession if they remain in place for several months. Gabriela Siller, an economist at Grupo Financiero Base, predicts that the Mexican peso could reach record lows and foreign investment in the country could decline sharply.

Canadian Retaliation

In response to Trump’s tariffs, Canadian Prime Minister Justin Trudeau announced that Canada will impose a 25% tariff on C$155 billion ($106.5 billion) worth of U.S. goods. The first C$30 billion will take effect immediately, with the remaining C$125 billion following within three weeks.

“We are prepared to respond,” Trudeau said, adding that he had consulted with Canadian provincial leaders and would soon discuss the situation with Mexico’s President Claudia Sheinbaum.

The Canadian province of Nova Scotia has already introduced its own countermeasures, including:

Banning U.S. alcohol from provincial liquor store shelves starting February 4.

Doubling toll fees for commercial vehicles from the U.S. on the Cobequid Pass.

Restricting provincial procurement to prevent American businesses from bidding on government contracts.

A provincial statement condemned the tariffs, calling them “unlawful” and urging businesses to find new markets outside the U.S.

Mexico Plans Its Own Retaliation

Mexico is planning to respond, but the details are not final yet. Experts say that if the tariffs last more than three months, Mexico’s economy could be badly affected. President Sheinbaum has asked her Economy Minister to put a tariff plan in place against the U.S.

China Retaliation

China has announced that it will take countermeasures against President Trump’s new tariffs.

China announces plans to lodge a complaint with the World Trade Organization and implement “appropriate countermeasures” in response to Trump’s new 10% tariffs.

China will take the US to the World Trade Organization (WTO) over tariffs, promising countermeasures. The Chinese Ministry of Commerce stated that the US tariffs violate WTO rules.

China urges the US to correct its actions, seek fairness, and engage in respectful dialogue and cooperation to address the issues.

Trump Threatens More Tariffs

In response to Canada’s retaliation, Trump has warned that if Canada follows through on its countermeasures, the U.S. will double tariffs on Canadian goods. This could escalate the trade war further, deepening economic tensions across North America.

Future Outlook

Capital Economics warns that since exports to the U.S. make up about 20% of their GDP, the new tariffs could push Canada and Mexico into recession later this year.

Update

Weekend Wall Street suggests more selling on Monday, with Dow Futures down 330 points due to Trump’s tariffs on Mexico, Canada, and China. On Friday, the Dow dropped over 500 points from its daily highs, ending the day at 44,544.

Donald Trump Imposes New Tariffs on Canada, Mexico, and China; Retaliation Expected
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Japan Expresses Concern Over Trump’s Tariffs, Warns of Global Supply Chain Disruptions

Japan has expressed serious concerns over President Trump’s new tariffs on Canada, Mexico, and China, warning of potential disruptions to global supply chains. Finance Minister Katsunobu Kato emphasized the need for Japan to carefully examine these policies and consider counteractions. In response, Canada, China, and Mexico have all pledged to retaliate, with Canada imposing 25% tariffs on $106.6 billion worth of US goods.

Bloomberg: Tariffs to Hit Trade, GDP & Inflation

Bloomberg estimates that new U.S. tariffs will affect $1.3 trillion in trade, covering 43% of imports, or 5% of GDP. The average tariff rate is set to rise from 3% to 10.7%, though Trump’s proposed tariffs through 2028 could push it to 22%. These tariffs are expected to create a major supply shock, reducing U.S. GDP by 1.2% and raising Core PCE inflation by 0.7%, assuming trade partners retaliate. Most models have yet to factor in a potential 100% tariff on BRICS nations, which would be the most extreme tariff measure in U.S. history.

Trump to Hold Talks with Mexico and Canada After Tariff Announcement

President Trump announced he will speak with the leaders of Mexico and Canada on Monday after imposing tough tariffs on them and China. He acknowledged these tariffs could cause short-term issues for Americans, with markets concerned about growth and inflation. Trump also plans to impose tariffs on the European Union, saying they are necessary to address immigration, drug trafficking, and support local industries.

Update

Stock market futures are dropping more because of trade war worries, with the S&P 500 losing $1 trillion in value since Sunday night. Investors are concerned about economic growth and inflation.

Donald Trump Imposes New Tariffs on Canada, Mexico, and China; Retaliation Expected
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US Economy Faces Risk as Tariffs Hit Key Trade Partners

Tariffs on Mexico, Canada, and China could heavily impact the US economy. Goods imports make up 11% of US GDP, and 43% of those come from these three countries. This means 5% of US GDP is directly affected by the tariffs, which is significant given the usual 2% annual GDP growth.

Goldman Sachs Warns Trump’s Tariffs Could Cut S&P 500 Earnings

Goldman Sachs economists warn that if President Trump’s new tariffs on Mexico, Canada, and China are maintained, they could significantly affect Corporate America’s profits. The firm estimates that a 5% increase in tariffs could reduce the S&P 500’s earnings per share by 1-2%. If these tariffs continue, Goldman Sachs may lower its earnings forecasts for the S&P 500 by 2-3%.

Ontario Bans U.S. Companies from Contracts, Cancels Starlink Deal

Ontario Premier Doug Ford announced that, starting today and until U.S. tariffs are lifted, Ontario will ban American companies from securing provincial contracts. Additionally, the province will cancel its contract with Starlink.

White House: Mexico Serious About Tariffs, Canada Misunderstands

White House stated on Monday that Mexico has shown they are “serious” about President Trump’s executive order on tariffs, while Canada has “misunderstood” it. Trump imposed broad tariffs on Mexico, Canada, and China on Saturday, demanding they stop the flow of fentanyl and illegal immigrants into the U.S., sparking a trade war that could harm global growth and increase inflation. Kevin Hasset, Director of the White House National Economic Council, mentioned on CNBC that Mexico is fully committed to following Trump’s order. However, he noted that Canada seems to have misunderstood the directive.

Mexican President Sheinbaum and U.S. Pause Tariffs, Strengthen Border Security and Business Cooperation

Mexican President Sheinbaum said she had a positive discussion with Trump. Mexico will deploy 10,000 National Guard troops to the border to prevent drug trafficking into the U.S. She also mentioned that the U.S. has committed to stopping the flow of high-powered weapons into Mexico. U.S. and Mexico teams have already started working on security and business matters. Additionally, tariffs will be paused for the next month.

Update

US President Donald Trump announced a 30-day delay on proposed tariffs for Canadian and Mexican imports late Monday after high-level talks. The decision follows commitments from Canadian PM Justin Trudeau and Mexican President Claudia Sheinbaum to strengthen border security with the US.

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