Donald Trump unleashed a barrage of tariffs against Canada, Mexico and China on Saturday, launching a fresh global trade war.
The countries vowed to hit back with tariffs of their own, setting the stage for economic warfare that will reverberate across markets in the weeks ahead.
What has the US announced and why?
Washington unveiled 25 per cent tariffs on most imports from Canada and Mexico, and an additional 10 per cent levy on imports from China. Canadian oil was hit at a lower rate of 10 per cent. The duties will take effect from Tuesday.
Trump said the actions were in response to the “major threat” posed by the flow of migrants and drugs into the US across its borders with Canada and Mexico.
China several years ago cracked down on entities exporting fentanyl to North America. But Chinese groups responded by shipping the chemical ingredients — called precursor drugs — to Mexican cartels. The cartels then manufacture fentanyl and send it across the border where it has become the leading killer of Americans aged between 18 and 45.
Beijing agreed to take actions to stem the flow of precursors at a summit between Chinese President Xi Jinping and then-US President Joe Biden in San Francisco in 2023. Critics want China to do much more.
Trump on Saturday accused the Chinese Communist party of subsidising and incentivising domestic companies to export fentanyl and precursors.
How have Canada, Mexico and China responded?
Canadian Prime Minister Justin Trudeau on Saturday night announced retaliatory tariffs of 25 per cent on C$155bn (US$107bn) worth of American goods.
He said the “far-reaching tariffs” would hit US beer, wine, bourbon, fruit, fruit juices, perfume, clothing, shoes, household appliances, sports equipment, lumber and plastics.
He added that Ottawa was also considering “non-tariff measures” relating to critical minerals, in conjunction with provincial governments.
Mexico also announced it would impose retaliatory tariffs on US goods without specifying the size or the targets.
China has not yet made clear how it will respond to the actions. Beijing said on Sunday it “firmly deplores and opposes this move” and will take “necessary countermeasures to defend its rights and issues”.
US companies exported $763bn of goods to the three countries in the first 11 months of 2024 — with 17 per cent of total exports going to Canada, 16 per cent to Mexico and 7 per cent to China.
Mexico’s President Claudia Sheinbaum hinted at retaliatory tariffs late last year after Trump’s initial threats. People familiar with the matter say the country has prepared what it calls “carousel” tariffs where products are targeted on and off for months at a time, aimed at Republican lawmakers.
During a 2018 dispute in Trump’s first term, Mexico targeted steel and agricultural products like pork, apples and cheese.
What industries will be hit?
Carmakers, food producers and construction — all of which rely heavily on cross-border trade — are among the industries likely to be worst affected.
The US auto industry, particularly the traditional “Big Three” of Ford, General Motors and Stellantis, spread manufacturing over all three countries on the continent. US automotive suppliers also make goods in Mexico, from seats to axles. About 16 per cent of the value of a US-made car is derived from work done in Mexico or Canada.
Carmakers with operations in Mexico and Canada will be faced with either absorbing the cost or raising prices for consumers. The import tax could give a competitive boost to South Korean and Japanese carmakers selling in the US market, said Daniel Roeska, an analyst at Bernstein.
Food imports from both Canada and Mexico will be heavily affected. The US imported more than $45bn in agricultural products from Mexico in 2023, according to the US agriculture department, including strawberries, raspberries, tomatoes and beef. Another $40bn came from Canada, including beef, pork, grains, potatoes and canola.
Construction materials will also face pressure, with about a third of softwood lumber used in the US imported from Canada. Canada and Mexico combined also account for over a fifth of US cement imports.
“Much of the cost increase caused by tariffs will be passed on to US consumers,” said James Knightley, chief international economist at ING.
What was left out?
The Canadian oil industry was spared the worst of Trump’s tariffs, being carved out for a 10 per cent levy, as the White House sought to limit the inflationary impact on US motorists.
The US relies heavily on crude imports to feed its refineries, with about 40 per cent of the crude refined in the country coming from abroad — of that, 60 per cent comes from Canada and 11 per cent from Mexico. A significant rise in the cost of crude imports would be felt at the pump.
Chet Thompson, head of the American Fuel & Petrochemical Manufacturers, a refining industry group, said he hoped a deal was “quickly reached” to end all tariffs on the industry “before consumers feel the impact”.
Saturday’s announcement made no mention of the EU, but Trump said the previous day he “absolutely” planned to target the bloc with new levies in the future. “We’ll be doing something very substantial with the European Union,” he said.
How long will this last?
The White House said the US tariffs would remain in place “until the [immigration and drug] crisis is alleviated”. But analysts said they tested the scope of presidential powers and were likely to be challenged in court.
Trump used the International Emergency Economic Powers Act of 1977 (IEEPA) to apply the tariffs, marking the first time the law had been used to apply levies to countries.
“This move is not only an aggressive tariff action in size and scope, but it is also an aggressive assertion of the president’s power to impose those tariffs,” said Greta Peisch, partner at law firm Wiley Rein and a former US government trade counsel. “Once again, he has broken new ground and is testing the boundaries of trade authorities delegated by Congress.”
Trump threatened to apply broad tariffs to Mexico in 2019 over immigration issues, invoking IEEPA, but ultimately did not use them. Richard Nixon used a precursor to IEEPA, the Trading With the Enemy Act of 1917, to briefly apply tariffs of 10 per cent on US trading partners.
