WASHINGTON (AP) — President Donald Trump announced on Monday that 25% tariffs on imports from Mexico and Canada would go into effect on Tuesday, reigniting fears of a North American trade war that has already raised inflation and slowed growth.
“Tomorrow: 25% tariffs on Canada and Mexico. “And that will begin,” Trump told reporters in the Roosevelt Room. “They’re going to have to have a tariff.”
Trump has stated that the tariffs are intended to force the two U.S. neighbors to step up their efforts to combat fentanyl trafficking and illegal immigration. However, Trump has indicated that he wants to eliminate trade imbalances in the Americas and encourage more factories to relocate to the United States.
His comments quickly shook the US stock market, with the S&P 500 index falling 2% in Monday afternoon trading.
It demonstrates the political and economic risks that Trump feels compelled to take, given the possibility of higher inflation and the end of a decades-long trade partnership with Mexico and Canada, as the tariffs take effect at 12:01 a.m. on Tuesday.
Nonetheless, the Trump administration remains convinced that tariffs are the best way to boost US manufacturing and attract foreign investment.
Commerce Secretary Howard Lutnick said Monday that the computer chipmaker TSMC had increased its investment in the United States due to the possibility of additional 25% tariffs.
In February, Trump imposed a 10% tariff on Chinese imports. He reiterated Monday that the rate would double to 20% on Tuesday.
Trump granted a one-month delay in February after Mexico and Canada promised concessions. However, Trump stated on Monday that there was “no room left for Mexico or Canada” to avoid the steep new tariffs, which would also tax Canadian energy products such as oil and electricity at a lower 10% rate.
Canada’s Prime Minister Justin Trudeau said Monday that Trump’s tariffs have no justification.
“Because of the tariffs imposed by the U.S., Americans will pay more for groceries, gas and cars, and potentially lose thousands of jobs,” said Mr. Trump. “Tariffs will jeopardize a highly successful trading relationship. They will violate the trade agreement negotiated by President Trump during his last term.”
Trudeau said his country will retaliate by imposing 25% tariffs on American goods worth $155 billion Canadian ($107 billion US) over 21 days, beginning with tariffs on $30 billion Canadian ($21 billion US) after midnight on Tuesday.
Mexico’s President Claudia Sheinbaum went into Monday waiting to hear what Trump would say.
“It’s a decision that depends on the United States government, on the United States president,” Sheinbaum said prior to Trump’s announcement. “So whatever his decision is, we will make our decisions and there is a plan, there is unity in Mexico.”
Both countries attempted to take action in response to Trump’s concerns. Mexico deployed 10,000 National Guard troops to its shared border to combat drug trafficking and illegal immigration.
Canada appointed a fentanyl czar, despite the fact that drug smuggling from Canada into the United States appears to be minimal.
As late as Sunday, it was unclear what decision Trump would make regarding tariff rates. Lutnick told Fox News Channel’s “Sunday Morning Futures” that the decision was “fluid.”
“He’s sort of thinking about right now how exactly he wants to play it with Mexico and Canada,” Lutnick told me. “And that’s a fluid situation. On Tuesday, tariffs will be imposed on Mexico and Canada. We’ll leave that up to the president and his team to negotiate.”
According to Treasury Secretary Scott Bessent, Mexico has also offered to levy a 20% tariff on all Chinese imports as part of talks with the US.
Bessent told CBS News on Sunday that China would “eat” the tariff costs rather than passing them on to US businesses and consumers who import their products at higher prices.
However, companies ranging from Ford to Walmart have issued warnings about the potential negative impact of tariffs on their businesses.
Similarly, multiple analyses conducted by the Peterson Institute for International Economics and the Yale University Budget Lab indicate that the average family could face price increases of more than $1,000.
“It’s going to have a very disruptive effect on businesses, in terms of supply chains as well as their ability to conduct business operations effectively,” said Eswar Prasad, an economist at Cornell University. “There are going to be inflationary impacts that are going to be disruptive impacts.”
Democrats were quick to criticize the announced tariffs for exacerbating inflation and alienating allies.
According to Senate Democratic Leader Chuck Schumer of New York, voters in last year’s election were primarily concerned about inflation, and “now Donald Trump is making it worse.”
Sen. Amy Klobuchar, D-Minn., predicted that fertilizer prices will rise for farmers in her state.
“Isn’t this a crazy way to deal with our allies?” “He’s literally reaching out to Russia while imposing a 25% tariff on Canadian goods,” she explained.
Trump also intends to implement “reciprocal” tariffs in April that will match the rates charged by other countries, including any subsidies and value-added taxes imposed by those countries.
The United States president has already announced the elimination of exemptions from his 2018 tariffs on steel and aluminum, as well as tariffs on automobiles, computer chips, copper, and pharmaceutical drugs.