President Donald Trump said Monday that a 25% tax on imports from Mexico and Canada began on Tuesday, sparking new fears about the North American trade war, which has already shown signs that boosted inflation and stunted growth.
“Tomorrow – a 25% tariff in Canada and a 25% tariff in Mexico. Trump told reporters in the Roosevelt Room. “They’ll have to have tariffs,” Trump said the tariffs were to force two US neighbors to step up the fight against fentanyl trafficking and to stop illegal immigration. But Trump also shows that he wants to even balance trade with the two countries and move more factories to the US.
S&P 500 drop 2%
His comments quickly rattle US stock markets, with the S&P 500 index down 2% in trading Monday afternoons. This is a sign of political and economic risks that Trump feels forced to take, given the likely likely decades of trading partnership between Mexico and Canada.
However, the Trump administration believes tariffs are the best choice to boost US manufacturing and attract foreign investment. Commerce Secretary Howard Lutnick said Monday that computer chip maker TSMC had expanded its investment in the US due to a possible 25% tariff.
In February, Trump placed a 10% tariff on imports from China. He emphasized on Monday that the rate would double to 20% on Tuesday.
Trump provided a month’s delay in February as both Mexico and Canada promised concessions. But Trump said Monday, “There are no rooms left in Mexico or Canada.” This is set to tax Canadian energy products such as oil and electricity at 10% lower rates.
Ready for retaliation
“If Trump is imposing tariffs, we are ready,” Canadian Foreign Minister Melanie Jolly said. Jolie said Canada has a very strong border plan that she explained last week to Trump administration officials. She said diplomatic efforts are continuing. She spoke after Trump made his comments on Tuesday.
Mexican President Claudia Shainbaum went on Monday waiting to see what Trump said.
“This is a decision that relies on the US government and the US president,” Shanebaum said ahead of Trump’s statement. “Whatever his decision is, we have a decision, we have a plan, there is unity in Mexico.” Both countries tried to show action in response to Trump’s concerns. Mexico sent 10,000 National Guard personnel to shared borders to crack down on drug trafficking and illegal immigration. Canada was named Emperor Fentanyl despite the relatively modest drug smuggling from Canada to the US.
On Sunday, it was unclear what Trump would make for tariff rates. Lutnick told Fox News Channel’s Sunday Morning Futures that the decision was “fluid.” “He’s now thinking about exactly what he wants to play it in Mexico and Canada,” Rutnick said. “It’s a liquid situation. We’re set to incur tariffs in Mexico and Canada on Tuesday. What exactly are they, we’re going to leave it for the president and his team to negotiate.” Treasury Secretary Scott Bessent said Mexico has also offered to impose a 20% tax on all imports from China as part of its talks with the US.
Bessent told CBS News on Sunday that China “eats” the cost of tariffs in exchange for giving it to US businesses and consumers importing the products in the form of higher prices.
However, businesses from Ford to Walmart have warned about the negative impacts that tariffs can create on businesses. Similarly, multiple analyses by the Peterson Institute for International Economics and the Yale University Budget Lab suggest that the average family could face price increases of more than $1,000.
Destructive for businesses
“We’re looking forward to seeing you in the process of exploring the world,” said Eswar Prasad, an economist at Cornell University. “There is an impact of inflation that will be devastating,” Prasad warned that some of the increased costs caused by tariffs will be offset by the increasing value of US dollars. But the stronger dollar could reduce competition in foreign markets for American-made goods, perhaps making it difficult for Trump to fill trade imbalances.
Trump will also roll out what is called “mutual” tariffs in April. This includes fees charged by other countries as well as subsidies and VATs charged by those countries.
The US President has already announced the removal of exemptions from 2018 tariffs on steel and aluminum, in addition to tariffs on automobiles, computer chips, copper and pharmaceutical drugs.
