President Donald Trump announced on Monday from Washington D.C. that a 25% tariff on imports from Canada and Mexico will go into effect on Tuesday. This decision has revived concerns of a North American trade war, which could lead to higher inflation and hinder economic growth.
“Tomorrow — tariffs 25% on Canada and 25% on Mexico. And that’ll start,” Trump stated in the Roosevelt Room while addressing reporters. He indicated that the tariffs aim to compel both neighboring countries to intensify their efforts against fentanyl trafficking and illegal immigration, as well as to address the trade imbalance with the U.S.
The announcement rattled financial markets, with the S&P 500 index dropping 2% in Monday afternoon trading, highlighting the economic risks associated with Trump’s bold stance. The ramifications of such tariffs could threaten not only a decades-long trade partnership but also exacerbate inflationary pressures.
Despite the potential fallout, the Trump administration remains optimistic that these tariffs will enhance U.S. manufacturing and attract foreign investment. Commerce Secretary Howard Lutnick revealed that the Taiwanese chipmaker TSMC has ramped up its investments in the U.S. partly due to the looming tariffs. Additionally, Trump reiterated plans to escalate a previous 10% tariff on Chinese imports to 20% effective Tuesday.
In February, Trump had granted a one-month delay on the tariffs following concessions from Canada and Mexico. However, he emphasized that no further concessions would be accepted, marking a significant shift in negotiations. The tariffs will also target Canadian energy products at a reduced 10% rate.
Canadian Foreign Minister Mélanie Joly responded assertively to Trump’s announcement, declaring Canada prepared for tariffs amounting to $155 billion, including an initial $30 billion tranche. She expressed Canada’s readiness to defend its interests while diplomatic discussions continue.
In Mexico, President Claudia Sheinbaum awaited Trump’s declaration with an understanding that the U.S. would dictate the course of action. She highlighted Mexico’s plan to respond decisively to any tariff implementation, emphasizing unity and readiness.
Both nations have taken steps to address Trump’s concerns. Mexico has mobilized 10,000 National Guard troops to its borders to combat drug trafficking and illegal immigration. Meanwhile, Canada has appointed a fentanyl czar, although the smuggling of the substance into the U.S. is reported to be minimal.
As late as Sunday, the specifics regarding the tariff rates remained uncertain. Lutnick described the situation as “fluid,” indicating that discussions were ongoing within the Trump administration.
Notably, Treasury Secretary Scott Bessent mentioned that Mexico had proposed imposing 20% taxes on all imports from China in ongoing dialogues with the U.S. He claimed that China would absorb the cost of tariffs rather than passing it onto U.S. businesses and consumers.
However, major corporations, including Ford and Walmart, have voiced concerns about the adverse impacts tariffs could have on their operations. Studies from institutions such as the Peterson Institute for International Economics predict that an average family may face price increases exceeding $1,000 due to the tariffs.
Eswar Prasad, an economist at Cornell University, cautioned against the potential disruptions that tariffs could cause in supply chains and business operations, alongside inflationary repercussions. He noted that while some cost increases might be mitigated by a stronger U.S. dollar, it could also diminish the competitiveness of American goods in the global market, complicating efforts to reduce the trade imbalance.
Further, Trump intends to introduce “reciprocal” tariffs in April, aligning U.S. tariff rates with those imposed by other countries, including any subsidies and value-added taxes. He has also indicated a removal of exemptions from tariffs on steel, aluminum, autos, computer chips, copper, and pharmaceutical drugs as part of his trade policy strategy.
