Trump’s Tariffs Are Here: What It Means for Trade, Prices, and Consumers
U.S. President Donald Trump‘s new 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with fresh duties on Chinese goods, sparking trade wars that could slam economic growth and raise prices for Americans still smarting from years of high inflation.
The moves, which could upend nearly $2.2 trillion in annual trade, came after Trump declared that the top three U.S. trading partners had failed to do enough to stem the flow of fentanyl and its precursor chemicals into the U.S.
In an address to Congress, Trump said further tariffs would follow on April 2, including “reciprocal tariffs” and non-tariff actions aimed balancing out years of trade imbalances.
“Other countries have used tariffs against us for decades, and now it’s our turn,” Trump said, citing high duties imposed on U.S. goods by India, South Korea, the European Union, China and others.
China’s foreign affairs ministry shot back defiantly: “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Commerce Secretary Howard Lutnick told reporters that U.S. officials had spoken with Mexico and Canada “all day” and might still work out a partial resolution with the two neighbors, adding that they needed to do more on the fentanyl front.
“I think there’ll be some movement. It will not eliminate the tariffs … but it might modify the tariffs somewhat,” he said, pointing to a decision on Wednesday.
Lutnick said Trump was considering providing some relief to companies that comply with rules under the U.S.-Mexico-Canada Agreement on trade that is due for renegotiation in 2026.
Trump hailed his tariff agenda, his efforts to curb the fentanyl overdose crisis and a Ukraine minerals deal during a nationally televised address to a joint session of Congress on Tuesday night.
RETALIATION STARTS
Canadian Prime Minister Justin Trudeau described the tariffs as “a very dumb thing to do” and hit back with 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles.
Mexican President Claudia Sheinbaum vowed retaliation but without details, saying she would announce Mexico’s response on Sunday.
Lutnick’s comments on negotiations lifted the Canadian dollar and the Mexican peso off of deep losses earlier on Tuesday, but Trump’s tariffs prompted a global stock sell-off.
China responded immediately, announcing additional tariffs of 10%-15% on certain U.S. imports from March 10 and a series of new export restrictions for designated U.S. entities. Later it raised complaints about the U.S. tariffs with the World Trade Organization.
Trudeau said Canada would impose tariffs on another C$125 billion of U.S. goods if Trump’s tariffs were still in place in 21 days, likely to include motor vehicles, steel, aircraft, beef and pork. Canada also will challenge the U.S. tariffs under rules of the WTO and the U.S.-Mexico-Canada free trade agreement.
“They’ve chosen to launch a trade war that will, first and foremost, harm American families,” Trudeau said of the Trump administration.
Prime Minister Trudeau stated that he believes President Trump intends to weaken the Canadian economy, which could lead Ottawa to consider annexation by the U.S. Ontario Premier Doug Ford canceled a C$100 million contract with Elon Musk’s Starlink network, prohibited U.S. firms from provincial government contracts, and mentioned that if Trump’s tariffs continue, Ontario will impose a 25% surcharge on electricity exports to the U.S.
President Trump posted on his private social media platform: “Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!”
PRICE HIKES
The tariffs are causing some U.S. price increases, countering President Trump’s election promise to reduce living costs for Americans. Target (TGT.N) CEO Brian Cornell informed CNBC that the retail company would increase prices “over the next couple of days” on some seasonal grocery items such as avocados from Mexico. Electronics retailer Best Buy also indicated potential higher prices. The company’s CEO Corie Barry informed analysts that China remains the primary source of products sold by the company, followed by Mexico.
The 20% tariff on Chinese imports will affect several key electronics categories previously unaffected by earlier duties, including smartphones, laptops, video game consoles, smartwatches, speakers, and Bluetooth devices. Nationwide Mutual chief economist Kathy Bostjancic estimated that the tariffs might result in an annual increase of nearly $1,000 per household in the cost of goods. She noted that the strengthening dollar helps mitigate some of the inflation impact.
STACKING CHINA TARIFFS
An additional 10% duty on Chinese goods took effect Tuesday, adding to a 10% tariff imposed on February 4 and building upon tariffs of up to 25% imposed during Trump’s first term. Tariffs on certain products increased significantly under former President Joe Biden last year. China’s retaliatory tariffs targeted various U.S. agricultural products, including specific meats, grains, cotton, fruit, vegetables, and dairy items. U.S. farmers were adversely affected by Trump’s first-term trade wars, experiencing approximately $27 billion in lost export sales and losing their share of the Chinese market to Brazil.
The tariffs on Mexican and Canadian products could have substantial consequences for the integrated North American economy and potentially disrupt years of resilience in U.S. growth. The Federal Reserve Bank of Atlanta’s GDPNow model showed a notable shift to a 2.8% U.S. GDP contraction in the first quarter, compared to the 2.3% estimated growth last week.
