In Washington, President Donald Trump announced on Monday that tariffs of 25% on imports from Mexico and Canada would be implemented starting Tuesday. This decision has reignited concerns about a potential North American trade war, with indications that it could lead to increased inflation and impede economic growth.
During a conversation with reporters in the Roosevelt Room, Trump declared that Canada and Mexico would be subject to these tariffs as a means to compel these nations to intensify their efforts against fentanyl trafficking and curb illegal immigration. Furthermore, he suggested that the tariffs aim to rectify trade imbalances in the Americas, encouraging factories to relocate to the United States.
Trump’s remarks had an immediate impact on the U.S. stock market, causing the S&P 500 index to drop by 2% during Monday afternoon’s trading session. This decline reflects the political and economic risks associated with the tariffs, which are set to take effect at 12:01 a.m. Tuesday. There’s the likelihood of heightened inflation and the potential end of a long-standing trade partnership with Mexico and Canada.
Despite these concerns, the Trump administration is convinced that the tariffs represent the optimal strategy to enhance U.S. manufacturing and draw in foreign investment. Commerce Secretary Howard Lutnick noted on Monday that the U.S. expansion of the computer chip manufacturer TSMC was partly due to the potential imposition of 25% tariffs.
Back in February, Trump instituted a 10% tariff on imports from China, and he reiterated on Monday that this would increase to 20% on Tuesday. Although Trump provided a one-month deferment in February following Mexico and Canada’s promises of concessions, he asserted on Monday that there was “no room left” for these countries to avoid the significant new tariffs. The tariffs are also set to include a 10% tax on Canadian energy products such as oil and electricity.
Canadian Foreign Minister Mélanie Joly expressed readiness to impose retaliatory tariffs, saying Canada had a strong border plan and that diplomatic discussions are ongoing. Meanwhile, Mexican President Claudia Sheinbaum was watchful on Monday, awaiting Trump’s pronouncement. Both countries have taken steps to address Trump’s concerns, with Mexico deploying 10,000 National Guard troops and Canada appointing a fentanyl czar, although fentanyl smuggling from Canada is relatively limited.
Up until Sunday, there was uncertainty around the final tariff rates Trump might decide on. Lutnick mentioned on Fox News Channel’s “Sunday Morning Futures” that the situation was dynamic. Treasury Secretary Scott Bessent mentioned that Mexico had offered to impose 20% taxes on all imports from China in negotiation talks with the United States.
Bessent assured CBS News that the burden of these tariffs would fall on China, rather than U.S. consumers and businesses that import Chinese goods. However, companies such as Ford and Walmart have expressed concerns about the adverse effects tariffs could have on their operations. Studies from the Peterson Institute for International Economics and the Yale University Budget Lab indicate potential price hikes exceeding $1,000 for the average family.
Economist Eswar Prasad from Cornell University warned about the likely disruptive effects on businesses’ supply chains and operations, predicting inflationary pressures. Democrats swiftly criticized the tariffs, warning they could exacerbate inflation and strain relationships with allies. Senate Democratic Leader Chuck Schumer pointed to voters’ concerns about inflation, noting that the tariffs could worsen the situation.
Senator Amy Klobuchar forewarned of increased costs for farmers in her state. She criticized Trump for alienating allies while simultaneously reaching out to Russia. Additionally, Trump intends to introduce “reciprocal” tariffs in April to match foreign tariff rates, including subsidies and value-added taxes from other countries.
This decision follows Trump’s removal of exemptions from his 2018 tariffs on steel and aluminum, as well as on various goods including autos, computer chips, copper, and pharmaceutical drugs.
