Canada, Mexico Slap Tariffs On U.S. After Trump Uses Trade To Force Border Security “I think Canadians understand that we need to respond to this,” said Canadian Prime Minister Justin Trudeau.
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Battles of attrition are messy affairs for all parties involved and tend only to occur once other options have failed. Donald Trump seems to want to make them his preferred economic policy. The U.S. president on Saturday imposedtariffs of 25%. and opened a new tab
on Mexican and most Canadian goods - as well as a fresh 10% levy on Chinese imports - sparking tit-for-tat retaliation and global market ructions. Absent a rapid climbdown from his counterparts to the north and south, it's hard to see how he wins.
Sure, he has cited illegal immigration and the illicit fentanyl trade as reasons for his actions. But neither is an easy, one-sided fix - and both are relatively small issues on the Canadian border. His use of emergency powers that impose the costs immediately, rather than through trade policy tools that allow time for negotiations, suggests Trump is more interested in inflicting pain than reaching a solution.
He's wagering that the world's largest economy can weather the ensuing economic fallout better than its neighbors. On paper, that's true. Trump's tariffs alone could reduce U.S. GDP by $200 bln a year, according to the Peterson Institute for International Economics, opens new tab. That's less than a 1% hit. The think tank's estimated $100 billion damage to Canada, though, represents almost 5% of its GDP. The levies, if sustained, will shunt Prime Minister Justin Trudeau's country into recession, per analysts at RBC.
But slapping charges on more than 40% of what the United States imports will pummel Americans, too. Staples like fruit, vegetables, and meat will be affected, as will big purchases: a new car could cost $3,000 more thanks to the industry's highly interconnected North American supply chain, per TD Bank.
The line chart compares the US monthly imports from Mexico, China and Canada for 2024
The retaliatory tariffs pledged by Trudeau and Mexico President Claudia Sheinbaum will make matters worse. And there will be unintended knock-on effects. Canadians are being encouraged to stop buying American goods altogether. Meanwhile, choking Mexico's economy may cause more, not fewer, people to try to cross illegally into the United States.
Markets are starting to price in Trump's aggression: in Asian trading on Monday, the U.S. dollar touched a 20-year high against its Canadian counterpart and strengthened against the peso and euro. But U.S. stock futures also slumped, with Nasdaq futures down nearly 3%. Trump warns his citizens there will be some pain but his tolerance for a large stock correction is unclear.
Such downsides argue for a swift resolution to the looming trench warfare. He may yet try to spin any small concessions in the coming weeks into what he can claim is a victory. Even then, Washington's poor treatment of its allies will have long-lasting effects that may reshape markets and trade in more profound ways.
U.S. President Donald Trump on Feb. 1 said he would impose a 25% tariff on imports from Mexico and Canada, with an additional 10% tariff on existing levies on imports from China. Energy resources from Canada will be subject to a lower 10% tariff. The moves take effect on Feb. 4.
The president said he was taking action, under the 1977 International Emergency Economic Powers Act, to hold the countries "accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country".
A White House fact sheet on the tariffs also noted that the U.S. trade deficit in goods with the countries was more than $1 trillion in 2023 and gave no details on what the three countries would need to do to win a reprieve. Trump also said in later comments that tariffs would "definitely happen" with the European Union, but did not say when.
Later on the same day, Canada Prime Minister Justin Trudeau and Mexico President Claudia Sheinbaum each announced that their countries would impose retaliatory tariffs on U.S. goods.
Canada will retaliate against PresidentDonald Trump's tariffswith 25% levies on a raft of U.S. imports, Prime Minister Justin Trudeau said on Saturday, warning Americans that Trump's actions would have real consequences for them.
As relations between the long-time allies who share the world's longest land border reach a new low, Trudeau told a news conference he was slapping tariffs on C$155 billion ($107 billion) of U.S. goods. Those on C$30 billion will take effect on Tuesday, the same day as Trump's tariffs, and duties on the remaining C$125 billion in 21 days, he said.
Trudeau's announcement came just hours after Trump ordered 25% tariffs on Canadian and Mexican imports and 10% on goods from China, risking a trade war that economists say could slow global growth and reignite inflation.
Trump said he would impose a 10% tariff on all energy imports from Canada.
The Canadian leader said tariffs would include American beer, wine, and bourbon, as well as fruits and fruit juices, including orange juice from Trump's home state of Florida. Canada would also target goods including clothing, sports equipment, and household appliances.
Trudeau said the coming weeks would be difficult for Canadians but that Americans would also suffer from Trump's actions.
"Tariffs against Canada will put your jobs at risk, potentially shutting down American auto assembly plants and other manufacturing facilities," Trudeau said, addressing U.S. citizens during a press conference in Ottawa.
"They will raise costs for you, including food at the grocery store and gas at the pump."
Canada is considering non-tariff measures, potentially relating to critical minerals, energy procurement, and other partnerships, Trudeau said.
Item 1 of 4 Canada's Prime Minister Justin Trudeau is joined by Finance Minister Dominic LeBlanc, Minister of Foreign Affairs Melanie Joly, and Minister of Public Safety David McGuinty, as he speaks during a press conference while responding to U.S. President Donald Trump's orders to impose 25% tariffs on Canadian imports, in Ottawa, Ontario, Canada February 1, 2025. REUTERS/Patrick Doyle
[1/4]Canada's Prime Minister Justin Trudeau is joined by Finance Minister Dominic LeBlanc, Minister of Foreign Affairs Melanie Joly, and Minister of Public Safety David McGuinty, as he speaks during a press conference while responding to U.S. President Donald Trump's orders to impose 25% tariffs on... Purchase Licensing Rights, opens new tabRead more
Canada runs a trade surplus with the U.S. which President Donald Trump has criticized
The 9,000-km (5,600-mile) U.S.-Canada border handles over $2.5 billion in trade a day, especially in energy and manufacturing, according to Canadian government data from 2023.
In 2023, Canada exported close to C$550 billion worth of goods and services to the U.S., or more than three-fourths of its total exports. Energy accounted for 30% and manufacturing contributed around 15% to exports south of the border.
Exports to the U.S. account for roughly 17.8% of Canadian gross domestic product and more than 2.4 million jobs in Canada.
The tariffs hit Canada as it deals with a political crisis and a leadership race within Trudeau's Liberal Party.
Facing low approval ratings, Trudeau has said he will resign after nine years in office once a new party leader is chosen. The opposition Conservatives could win the next election by a thumping majority, according to recent opinion polls.
Flanked by his foreign affairs and finance ministers a somber Trudeau recalled the years of bilateral relations between the two countries.
"From the beaches of Normandy to the mountains of the Korean Peninsula, from the fields of Flanders to the streets of Kandahar, we have fought and died alongside you during your darkest hours," he said. "We've built the most successful economic, military, and security partnership the world has ever seen."
Trudeau encouraged Canadians to buy Canadian products and vacation at home rather than in the U.S.
"We didn't ask for this but we will not back down," he said.
Asia's factory activity weakened in January as soft Chinese demand and threats of higher tariffs by U.S. President Donald Trump weighed on business sentiment, private surveys showed on Monday, darkening the outlook for the region's economy.
The latest factory readings come as global markets tumbled after Trump on Saturday made good on his previous threats and ordered sweeping tariffs on imports from Mexico, Canada, and China.
The headwinds from China and uncertainty over the fallout from Trump's policies will likely pose major headaches for Asian policymakers as they seek to underpin their economies, many of which are reliant on Chinese consumption and global trade.
China's factory activity grew at a slower pace in January, while staffing levels fell at the quickest pace in nearly five years as trade uncertainties increased, a private-sector business survey showed on Monday.
The outcome was better than an official survey last week, which showed manufacturing activity in the world's second-largest economy unexpectedly contracted in January.
In a sign of the broadening impact of China's weakness and U.S. tariff threats, Japan's factory activity fell in January at the fastest pace in 10 months with business confidence hitting a more than two-year low.
While South Korea's manufacturing activity expanded marginally in January, that of Taiwan and the Philippines slowed as the darkening outlook for global trade weighed.
"There's caution among Asian companies over Trump's tariff threats. Manufacturers also aren't confident about the outlook for China, where consumption is unlikely to increase much due to rising job losses among the younger generation," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.
"Trump tariffs could also accelerate U.S. inflation and keep the dollar strong, which would put downward pressure on emerging Asian currencies. When global trade is shrinking, that won't bring much benefits to Asian manufacturers," he added.
Indeed, shares of Japanese and South Korean car makers and their suppliers were hit hard in Asia on Monday, as Trump's weekend announcement took a toll on exporters across the region.
China's Caixin/S&P Global manufacturing purchasing managers' index (PMI) slipped to 50.1 in January from 50.5 the previous month, missing analysts' forecasts and easing to a four-month low. But it was just above the 50-mark that separates growth from contraction.
Japan's final au Jibun Bank PMI slumped to 48.7 in January, lower than 49.6 in December and remaining below the 50.0 threshold for seven consecutive months.
South Korea's PMI, by contrast, rose to 50.3 in January from 49.0 in December, when business sentiment was hit by domestic political turmoil, the survey compiled by S&P Global showed.
South Korea's economy barely grew in the fourth quarter of 2024, as a political crisis sparked by President Yoon Suk Yeol's short-lived Dec. 3 martial law bid hurt already frail consumption.
Vietnam's PMI fell to 48.9 in January from 49.8 in December, while that of Taiwan dropped to 51.1 from 52.7, the surveys showed. The index for the Philippines also fell to 52.3 in January from 54.3 in December.
On a brighter note, India's factory activity grew in January at the quickest pace in six months on resilient demand and strong output.
(Reuters) - China's government on Sunday denounced the Trump administration's imposition of a long-threatened 10% tariff on Chinese imports while leaving the door open for talks with the U.S. that could avoid a deepening conflict.
Beijing will challenge President Donald Trump's tariff at the World Trade Organization - a symbolic gesture - and take unspecified “countermeasures” in response to the levy, which takes effect on Tuesday, China's finance and commerce ministries said.
That response stopped short of the immediate escalation that had marked China's trade showdown with Trump in his first term as president and repeated the more measured language Beijing has used in recent weeks.
Trump on Saturday ordered 25% tariffs on Canadian and Mexican imports and 10% on goods from China, saying Beijing needed to stanch the flow of fentanyl, a deadly opioid, into the United States.
China's toned-down response marked a contrast with the direct retaliation and heated language from Canada, a long-time U.S. ally, and Mexico, the top destination for U.S. exports.
China's commerce ministry said in a statement that Trump's move "seriously violates" international trade rules, urging the U.S. to "engage in frank dialogue and strengthen the cooperation".
Filing a lawsuit with the WTO could allow Beijing a win in messaging by standing up for the rules-based trading system long advocated by U.S. administrations of both parties. Beijing has taken the same step in a challenge to tariffs of up to 45% on Chinese-made electric vehicles by the European Union.
At the same time, a WTO appeal poses no immediate cost or threat to Washington.
The WTO's dispute settlement system has been effectively shut down since 2019 when Trump blocked appointments of judges to handle appeals. Since President Barrack Obama, the U.S. has charged that the WTO appeals body had overstepped its authority.
'AMERICA'S PROBLEM'
For weeks Chinese foreign ministry spokesperson Mao Ning has said Beijing believes there is no winner in a trade war.
Chinese officials have also been encouraged by signs Trump could be seeking a more nuanced relationship with China since a conversation he had with Chinese leader Xi Jinping last month.
Both Republicans and Democrats have come to view China as the biggest foreign policy and economic challenge to the United States.
China's massive trade surplus - almost $1 trillion last year - is a vulnerability for Beijing. China's exports in key industries, including autos, have been growing faster in volume than value, suggesting manufacturers are discounting to try to win overseas sales when demand at home has been sputtering.
For that reason, analysts have expected China to try to strike a deal early with Trump to soften the blow from trade action by the U.S.
China has also been preparing for the long-expected Trump move on tariffs for months by deepening ties with allies, pushing for some self-reliance in key areas of technology, and setting aside funds to prop up a vulnerable economy.
China's economy, the world's second-largest, hit its official growth target of 5% last year, even as many complained of declining job prospects and worsening living standards.
China's sharpest pushback on Sunday was over fentanyl, an area where the Biden administration had also been urging Beijing to crack down on shipments of the China-made precursor chemicals needed to manufacture the drug.
"Fentanyl is America's problem," China's foreign ministry said. "The Chinese side has carried out extensive anti-narcotics cooperation with the United States and achieved remarkable results."
President Donald Trumpsaid Sunday that Americans could feel “some pain” from theemerging trade wartriggered by histariffs against Canada, Mexico and China, and claimed that Canada would “cease to exist” without its trade surplus with the United States.
The trade penalties that Trump signed Saturday at his Florida resort caused a mix of panic, anger, and uncertainty, and threatened to rupture a decades-old partnership on trade in North America while further straining relations with China.
Trump on Sunday night returned from Florida and threatened to impose steeper tariffs elsewhere, telling reporters that the import taxes will “definitely happen” with the European Union and possibly with the United Kingdom as well.
He brushed aside retaliatory measures from Canada, saying, “If they want to play the game, I don’t mind. We can play the game all they want.” Trump said he plans to speak with his Canadian and Mexican counterparts on Monday.
By following through on his tariffs campaign pledge, Trump may also have simultaneously broken his promise to voters in last year’s election that his administration could quickly reduce inflation. That means the same frustration he is facing from other nations might also spread domestically to consumers and businesses.
“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” Trump said in a social media post. “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
His administration has not said what specific improvements would need to be seen in stopping illegal immigration and the smuggling of fentanyl to merit the removal of the tariffs that Trump imposed under the legal justification of an economic emergency. But Trump, speaking to reporters after Air Force One, landed said that the trade imbalances with Canada and Mexico would also need to be erased as a condition for lifting the tariffs.
The president also tried to clarify his post about the possible inflation, saying on Sunday: “We may have in the short term, a little pain, and people understand that. But long term, the United States has been ripped off by virtually every country in the world.”
The tariffs are set to launch Tuesday and triggered confusion as Canada’s U.S. ambassador, Kirsten Hillman, told ABC News that her country was perplexed by the move because “we view ourselves as your neighbor, your closest friend, your ally.”
In his Truth Social post, Trump took particular aim at Canada, which responded with retaliatory measures. Trump is placing a 25% tariff on Canadian goods, with a 10% tax on oil, natural gas and electricity. Canada is imposing 25% tariffs, more than $155 billion Canadian (US$105 billion), on U.S. products, including alcohol and fruit.
Despite Trump’s assertions that the U.S. does not need Canada, one-quarter of the oil that America consumes per day is from its ally to the north. He reiterated his false claim that America subsidizes Canada by running a trade imbalance, a reflection in part of Canada exporting energy to the U.S.
Trump contended that without that surplus, “Canada ceases to exist as a viable Country. Harsh but true! Therefore, Canada should become our Cherished 51st State. Much lower taxes, and far better military protection for the people of Canada — AND NO TARIFFS!”
Prime Minister Justin Trudeau is encouraging Canadians to buy more Canadian goods, and says Trump’s moves will only cause pain across North America. More than 75% of Canada’s exports go to the U.S. Canada will first target alcohol, cosmetics and paper products; a second round later will include passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products and more.
Canada is the largest export market for 36 states and Mexico is the largest trading partner of the U.S.
Mexico’s president, Claudia Sheinbaum, also announced new tariffs and suggested the U.S. should do more within its own borders to address drug addiction. She and Trudeau spoke after Trump’s announcement and agreed “to enhance the strong bilateral relations” between Canada and Mexico, according to the prime minister’s office.
The Chinese government said it would take steps to defend its economic interests and intends to file a lawsuit with the World Trade Organization.
For Trump, the open question is whether inflation could be a political pressure point that would cause him to back down. As a candidate, Trump repeatedly hammered Democrats over the inflation under President Joe Biden that resulted from supply chain issues during the coronavirus pandemic, the Biden administration’s own spending to spur the recovery and Russia’s invasion of Ukraine.
Trump said his previous four years as president had low inflation, so the public should expect the same if he came back to the White House. But he also said specifically that higher inflation would stagger the U.S. as a nation, a position from which he now appears to be retreating with the promise of even more tariffs to come.
The U.S. president did not offer details Sunday about when he would impose tariffs elsewhere, but he said they would be coming “pretty soon” for the EU, which is also composed of U.S. allies.
Larry Summers, treasury secretary in the Clinton administration, said the tariffs were a “self-inflicted wound to the American economy.”
He told CNN’s “Inside Politics” that “on the playground or in international relations, bullying is not an enduringly winning strategy. And that’s what this is.” And the ultimate winner, Summers suggested, would be Chinese leader Xi Jinping because “we’ve moved to drive some of our closest allies into his arms” and “we’re legitimating everything he’s doing by violating all the international norms that we set up.”
Outside analyses make clear that Trump’s tariffs would hurt the voters that he intended to help, meaning that he might ultimately need to find a resolution.
An analysis by the Budget Lab at Yale shows that if the tariffs were to continue, an average U.S. household would lose roughly $1,245 in income this year, in what would be the overall equivalent of a more than $1.4 trillion tax increase over the next 10 years.
Goldman Sachs, in a Sunday analyst note, stressed that the tariffs go into effect on Tuesday, which means they’re likely to proceed “though a last-minute compromise cannot be completely ruled out.”
The investment bank concluded that because of the possible economic damage and possible conditions for removal “we think it is more likely that the tariffs will be temporary but the outlook is unclear.”
