Starting Tuesday, the United States will impose new 25% tariffs on goods imported from Canada and Mexico in addition to an additional 10% duty on goods from China, creating new fronts in a trade war that may soon include many of the country’s trading partners, both allies and adversaries.
To reduce the impact on American consumers, Canadian energy products—such as gas, oil, and electricity—will be subject to a reduced 10% tax rate.
According to the Associated Press and other media, Canada swiftly retaliated by imposing similar 25% tariffs on up to $155 billion in U.S. goods, including fruit and wine.
China’s Ministry of Foreign Affairs stated that the Chinese government strongly condemned the action and would take the required remedies in addition to bringing a lawsuit with the World Trade Organization. Meanwhile, Mexico’s president also announced retaliatory tariffs.
White House officials told reporters on call Saturday afternoon that President Trump had signed the orders to impose the tariffs on Saturday. According to the officials, the tariffs will stay in effect until a “crisis” involving illegal immigration and drug trafficking over U.S. borders is resolved.
Some China hawks are worried that the president is overcommitting himself with this opening salvo and that his disagreements with friendly nations highlight his lack of dedication to weaning America off of its reliance on low-cost, Chinese imports.
“I don’t think there’s a coherent strategy right now on tariffs, and I don’t say that lightly,” stated Derek Scissors, a senior scholar at the conservative American Enterprise Institute who provided trade advice to the first Trump administration.
“Trump is winging it, saying we have a large trade deficit with Canada when we don’t and that Canadians are responsible for fentanyl coming across the border when they aren’t,” he stated. “This lack of policy is inevitably going to lead to some sort of reversal, because there’s no overall strategy.”
Additionally, because it is unclear how U.S. trading partners would respond, investors are forced to speculate about the levies’ final effects.
Following Trump’s decision, U.S. markets lost gains Friday, with the Nasdaq Composite Index (COMP) falling 0.3%, the S&P 500 index (SPX) cutting 0.5%, and the Dow Jones Industrial Average (DJIA) closing the session down 0.8%.
“We expected tariffs, but not on Canada and Mexico first out of the gate,” TD Cowen policy strategist Chris Krueger wrote in a note on Friday afternoon. “The chaos premium is here.”
The International Emergency Economic Powers Act, which required President Trump to declare a national emergency before exercising its unproven powers, will be used to impose the tariffs.
Although the judiciary generally gives presidents the benefit of the doubt in situations pertaining to national security, experts anticipate that the tariffs will be challenged in court.
The tariffs will cause a “massive shock” to the American economy, according to Brad Setser, a former senior counselor to the U.S. Trade Representative during the Biden administration, who spoke on X Friday.
One weekend, the new levies will be a “much bigger move than all the trade action that Trump took in his first term.” Trump’s rhetoric on China is misleading because, during his first term in office, he stated at an event on Friday that he wanted to “have our economy become more dependent on Chinese demand” rather than detach the U.S. economy from China.
Trump has other plans, Setser said, even though his administration is full with experts who have argued for decoupling the U.S. economy and he broke with decades of economic orthodoxy when he imposed fresh tariffs on Chinese goods.
President Trump’s “end goal is more balanced trade, where China buys a lot more, using the arbitrary power of the state to divert Chinese demand towards the U.S. and away from others,” Setser stated.
This effort to unite the two economies also aligns with previous actions taken by Trump, such as his refusal to execute a U.S. law that would have banned TikTok, which some Democratic lawmakers believe was influenced by Elon Musk, the CEO of Tesla and a Trump advisor.
Co-author of the TikTok bill and Democratic Representative Raja Krishnamoorthi told the Atlantic magazine that Trump’s reversal on the matter is due to “one or two donors on his side who have basically tried to persuade him to undo the law.”
Shortly after meeting with Republican fundraiser and billionaire ByteDance investor Jeff Yass during the presidential campaign last year, Trump changed his mind about TikTok.
At the time, Trump denied talking to Yass about TikTok.
A request for comment from the White House was not answered.
Analysts claim that investors have found it challenging to comprehend Trump’s policy and the potential final cap on new charges due to his transactional and haphazard approach to tariffs.
As stated by Tobin Marcus, head of U.S. policy and politics at Wolfe Research, “investors have been feeling whiplash,” MarketWatch said. “It’s palpable when I talk to institutional investors how exhausting the chaos has been for those trying to follow this process and look more than two days into the future.”
