US tariffs on Mexico, Canada and China take effect, opening door to painful trade war

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 for inflation-weary consumers.

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. China and Canada immediately retaliated with tariffs on American goods, threatening to ignite a damaging trade war.

The Trump administration said the tariffs were necessary to stem 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,” according to a statement released by the White House shortly before the tariffs took effect.

But the tariffs come at a time when inflation remains stubbornly high. Americans, and the US economy as a whole, are on shakier ground, as evidenced by recent data.

Trump’s 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 be subject to a 10% tax.

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%.

The stocks of global carmakers that have plants in Mexico fell sharply on Tuesday morning. Germany’s Volkswagen dropped almost 4% by 5.46 a.m. ET, while Stellantis (STLA) — the maker of Chrysler and Jeep — fell nearly 7%.

China and Canada hit back

Beijing retaliated on Tuesday by announcing 15% tariffs on chicken, wheat, corn, and cotton imports from the US, 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,” was also imposed, it said.

Separately, China’s Ministry of Commerce said it added 15 American companies, including drone maker Skydio, to its export control list, which would bar Chinese companies from exporting dual-use equipment to them.

China’s retaliatory tariffs followed a “restrained, targeted approach aimed at causing pain to those industries that matter the most to the supporters of the Trump administration,” said Alfredo Montufar-Helu, head of the China Center for the Conference Board. He noted China’s tariffs give it room for negotiations to potentially avoid even more damaging tariffs down the road.

Speaking at a regular briefing on Tuesday, Lin Jian, a spokesperson for China’s Foreign Ministry, said: “China will fight till the end” if the US “insists on waging a tariff war, trade war or any other kind of war.”

“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,” he added.

China announced more measures targeting America on Tuesday. These include stopping lumber imports from the United States, suspending the permits of three US companies to export soybeans to the country and an anti-dumping investigation into some imports of American fiber optic products.

Part of Trump’s stated motivation for imposing tariffs on China, Canada and Mexico is to pressure those countries into exerting stricter controls on the flow of fentanyl into the US.

US law enforcement believes a number of China-based entities supply precursor chemicals, which can be used to make finished fentanyl in labs operated by drug cartels in the US and Mexico.

On Tuesday, China’s State Council Information Office published a document outlining the steps the government had taken in recent years to control the production and distribution of fentanyl-related substances, according to China’s state news agency Xinhua. Referring to China’s approach to international drug control, Xinhua quoted the document as saying that the country “advocates mutual assistance… and opposes finger-pointing and buck-passing.”

In Canada, Prime Minister Justin Trudeau said hours before the tariffs took effect that 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,” Trudeau said in a statement.

The premier of Ontario, Canada’s largest province, has also repeated his earlier threat to cut off energy supply to the US in response to Trump’s tariffs.

“If they want to try to annihilate Ontario, I will do everything, including cut off their energy, with a smile on my face. And I’m encouraging every other province to do the same,” Doug Ford told reporters on Monday, adding that eastern US relies on “our energy – they need to fell the pain.”

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.

Impact on spending

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 (NFTC) 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.

This story has been updated with additional information and context.

Marc Stewart, Olesya Dmitracova, Anna Cooban and Juliana Liu contributed to this article.

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