US President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect on Tuesday (4 March), along with a doubling of duties on Chinese goods to 20%, sparking trade wars that could slam economic growth and lift prices for Americans still smarting from years of high inflation.
The tariff actions, which could upend nearly $2.2 trillion in annual US trade with its top three trading partners, went live at 12:01 a.m. (05:01 GMT). Trump declared that all three countries had failed to do enough to stem the flow of the deadly fentanyl opioid and its precursor chemicals into the US.
Trump's new tariffs helped push Wall Street's main stock indexes lower for the second day in a row in early trade, with the tech-heavy Nasdaq Composite index dropping more than 10% from its all-time high on Dec. 16. Automakers, homebuilders, retailers and other tariff-sensitive stocks all took hits.
The losses followed steep drops in Asian and European shares, which helped push the safe-haven 10-year US Treasury yield its lowest level since October. The Canadian dollar and Mexican peso weakened against the greenback.
Retaliation
China responded immediately, announcing additional tariffs of 10%-15% on certain US imports from March 10 and a series of new export restrictions for designated US entities. Later it said it had raised complaints about the new measures with the World Trade Organization.
Canada and Mexico, which have enjoyed a virtually tariff-free trading relationship with the US for three decades, were poised to immediately retaliate.
Canadian Prime Minister Justin Trudeau said Ottawa was launching 25% tariffs on C$30 billion ($20.7 billion) worth of US imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper.
Trudeau said Canada would slap tariffs on another C$125 billion of US imports if Trump's tariffs were still in place in 21 days. Consultation over these produce were still taking place, but they are expected to include vehicles, steel, aircraft, fruits and vegetables, beef and pork.
"Tariffs will disrupt an incredibly successful trading relationship," Trudeau said, adding that they would violate the US-Mexico-Canada free trade agreement signed by Trump during his first term.
Ontario Premier Doug Ford told NBC that he was ready to cut off shipments of nickel and transmission of electricity from his province to the US.
Mexican President Claudia Sheinbaum said on Tuesday there was "no reason, rationale or justification" for Trump's actions after Mexico took "decisive actions" against organised crime and fentanyl trafficking.
She vowed retaliation and said she would announce Mexico's response at an event on Sunday in Mexico City's iconic Zocalo square.
The European Union's executive Commission said it "deeply regrets" the decision, which risked disrupting global trade. Trump has vowed to impose "reciprocal tariffs" on EU goods on 2 April .
Price Hikes
The tariffs were already sparking some US price increases, running counter to Trump's election vow to bring down living costs for Americans.
Target CEO Brian Cornell told CNBC that the retail giant would increase prices "over the next couple of days" on some seasonal grocery products such as avocados from Mexico.
"If there's a 25% tariff, those prices will go up...certainly over the next week," Cornell said.
Electronics retailer Best Buy also warned of potential higher prices as the tariffs came into effect. Best Buy CEO Corie Barrie told analysts on a call that China remains the top source of products sold by the company, with Mexico in second place.
The 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smart phones, laptops, video game consoles, smart watches and speakers and Bluetooth devices.
Barrie said the price increases could play out over a longer period, as Best Buy typically carries about six weeks' worth of inventory.
Stacking China Tariffs
The extra 10% duty on Chinese goods adds to a 10% tariff imposed by Trump on February 4 to punish Beijing over the U.S. fentanyl overdose crisis. The cumulative 20% duty comes on top of tariffs of up to 25% imposed by Trump during his first term on some $370 billion worth of US imports.
Some of these products saw US tariffs increase sharply under former president Joe Biden last year, including a doubling of duties on Chinese semiconductors to 50% and a quadrupling of tariffs on Chinese electric vehicles to over 100%.
China's new tariffs announced on Tuesday targeted a wide range of US agricultural products including certain meats, grains, cotton, fruit, vegetables and dairy products.
Beijing also placed 25 US firms under export and investment restrictions on national security grounds. Ten of these firms were targeted for selling arms to Taiwan.
China's commerce ministry said the US tariffs violated World Trade Organisation rules and "undermine the basis for economic and trade cooperation between China and the U.S."
US farmers were hard hit by Trump's first-term trade wars, which cost them about $27 billion in lost export sales and conceded their share of the Chinese market to Brazil.
Recession Fears
The tariffs on Mexican and Canadian products could have much deeper repercussions for a highly integrated North American economy that depends on cross-border shipments to build cars and machinery, refine energy and process agricultural goods.
"Today's reckless decision by the US administration is forcing Canada and the U.S. toward recessions, job losses and economic disaster," Canadian Chamber of Commerce CEO Candace Laing said in a statement.
Even before Trump's tariffs announcement, US data on Monday showed factory gate prices jumped to a nearly three-year high, suggesting that a new wave of tariffs could soon undercut production.
The Federal Reserve Bank of Atlanta's GDPNow model showed a stunning shift to a 2.8% US GDP contraction in the first quarter, from a 2.3% estimated growth last week.
