US President Donald Trump’s new 25 per cent tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20pc, launching new trade conflicts with the top three US trading partners.
The tariff actions, which could upend nearly $2.2 trillion in two-way annual US trade went live at 12:01am EST (10am Pakistan time), hours after 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.
Canada and Mexico, which have enjoyed a virtually tariff-free trading relationship with the US for three decades, were poised to immediately retaliate against their longtime ally.
Canadian Prime Minister Justin Trudeau said Ottawa would respond with immediate 25pc tariffs on C$30 billion ($20.7bn) worth of US imports, and another C$125bn ($86.2bn) if Trump’s tariffs were still in place in 21 days.
He said previously that Canada would target American beer, wine, bourbon, home appliances and Florida orange juice.
“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 in retaliation.
Mexican President Claudia Sheinbaum was expected to announce her response during a morning news conference in Mexico City on Tuesday, the country’s economy ministry said.
Stacking China tariffs
The extra 10pc duty on Chinese goods adds to a 10pc tariff imposed by Trump on February 4 to punish Beijing over the US fentanyl overdose crisis.
The cumulative 20pc duty also comes on top of tariffs of up to 25pc imposed by Trump during his first term on some $370bn 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 50pc and a quadrupling of tariffs on Chinese electric vehicles to over 100pc.
The 20pc tariff will apply to several major US consumer electronics imports from China previously untouched by prior duties, including smartphones, laptops, videogame consoles, smartwatches and speakers and Bluetooth devices.
China’s commerce ministry on Tuesday vowed countermeasures but offered no specifics as it said Washington mistakenly “shifted the blame” for its fentanyl crisis to Beijing.
The state-backed Global Times newspaper said on Monday that Beijing’s retaliation would most likely target US agricultural and food products.
US farmers were hard hit by Trump’s first-term trade wars, which cost them about $27bn in lost export sales and conceded 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 US toward recessions, job losses and economic disaster,” Canadian Chamber of Commerce CEO Candace Laing said in a statement.
She said the US tariffs will fail to usher in a “golden age” coveted by Trump but instead raise costs for consumers and producers and disrupt supply chains.
“Tariffs are a tax on the American people.”
Matt Blunt, president of the American Automotive Policy Council representing Detroit automakers, called for vehicles that meet the US-Mexico-Canada Agreement’s regional content requirements to be exempted from the tariffs.
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.
Trump’s confirmation that the tariffs would proceed sent financial markets reeling with global stocks tumbling and safe-haven bonds rallying. Both the Canadian dollar and Mexican peso fell against the greenback.
Piling on
Trump has maintained a blistering pace of tariff actions since taking office in January, including fully restored 25pc tariffs on steel and aluminum imports that take effect March 12, rescinding prior exemptions.
Trump’s “America First” agenda, aimed at redrawing trade relationships in favor of the US, is expected to be a centerpiece of his Tuesday night address to a joint session of Congress.
Trump on Saturday opened a national security investigation into imports of lumber and wood products that could result in steep tariffs. Canada, already facing 14.5pc US tariffs on softwood lumber, would be hit particularly hard.
A week earlier, Trump revived a probe into countries that levy digital services taxes, proposed fees of up to $1.5 million on every Chinese-built ship entering a US port and launched a tariff investigation into copper imports.
These add to his plans for higher “reciprocal tariffs” to match the levies of other countries and offset their other trade barriers, a move that could hit the European Union hard.
China says to impose fresh tariffs on US agricultural imports
China said it would slap fresh tariffs on a range of agricultural imports from the United States as of next week, in retaliation against a hike in levies by Washington.
“Additional 15pc tariffs will be imposed on chicken, wheat, corn and cotton,” Beijing’s finance ministry said in a statement.
And “additional 10pc tariffs will be imposed on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products”, it added.
Beijing in announcing its levies condemned the “unilateral imposition of tariffs by the US”.
The move “exacerbates the burden on US companies and consumers, and undermines the foundation of economic and trade cooperation between China and the United States”, the finance ministry said.
Beijing’s commerce ministry also said it would file a lawsuit at the World Trade Organisation over the additional 10pc tariffs.
Trump says Japan, China cannot keep reducing value of their currencies
Trump also said he told the leaders of Japan and China they could not continue to reduce the value of their currencies, as doing so would be unfair to the US.
Highlighting the risk that Japan’s export-reliant economy faces from uncertainty over Washington’s currency and tariff policies, the Nikkei benchmark tumbled nearly 2pc on Tuesday as Trump’s comments drove up the yen.
The yen briefly climbed to 148.60 per dollar on Tuesday, up from around 150 on Monday.
“I’ve called President Xi, I’ve called the leaders of Japan to say you can’t continue to reduce and break down your currency,” Trump said at the White House on Monday.
“You can’t do it because it’s unfair to us. It’s very hard for us to make tractors, Caterpillar here, when Japan, China and other places are killing their currency, meaning driving it down,” he said.
Instead of complaining repeatedly over the phone over such attempts, the United States could make up for the disadvantage its manufacturers suffer by imposing tariffs, Trump added.
“So all of these things add up,” he said. “And the way you solve it very easily is with tariffs.”
Tokyo was not adopting policies directly aimed at weakening the yen, Japanese Finance Minister Katsunobu Kato said, when asked about Trump’s comments.
“Japan has confirmed its basic stance on currency policy” with G7 countries and the United States, including at two-way talks with US Treasury Secretary Scott Bessent on Jan 29, Kato told a news conference in Tokyo on Tuesday.
Prime Minister Shigeru Ishiba also told parliament Japan was not pursuing a so-called “currency devaluation policy”, adding that he had no phone calls from Trump on exchange-rate policy.
Focus on BOJ
Japan and China were accused by Trump of intentionally weakening their currencies in his first term as president. A series of tit-for-tat US-China tariff announcements drove the Chinese currency down more than 12pc against the dollar between March 2018 and May 2020.
Recently, China has focused on stabilising its currency’s moves. The yuan, or renminbi, inched higher against the dollar on Tuesday as the central bank continued to guide the currency firmer — a move some analysts saw as aimed at easing friction with Washington.
“China and Japan are not keeping their currencies cheap, and in fact they are doing the opposite,” said Chang Wei Liang, currency and credit strategist at DBS.
“We see China and Japan as being aligned with the US in terms of not wanting to see excessive renminbi and yen weakness.”
Japanese policymakers, for their part, have been sensitive to the risk of Trump making explicit comments about the yen and causing market volatility that could hurt a fragile economic recovery.
While a weak yen boosts Japanese exports, Tokyo’s recent forays in the currency market aimed to prevent sharp yen falls that inflate import costs and hurt consumption.
Last week, Japan’s top currency diplomat, Atsushi Mimura, acknowledged the yen’s rebound at the time as reflecting the country’s solid economic fundamentals and prospects of a near-term interest rate hike by the central bank.
Japan has consistently, and successfully, urged G7 and G20 members to reaffirm their pact that excessive volatility in the currency market is undesirable – language Tokyo sees as giving it justification for yen intervention when the currency’s moves are too sharp and driven by speculative trade.
Trump’s criticism of a weak yen and uncertainty on how his tariff threats could affect global growth may complicate the Bank of Japan’s decision on how soon to raise interest rates.
Some analysts expect Trump’s displeasure over a weak yen to work in favour of further interest rate hikes from the Bank of Japan.
“Japan can’t conduct yen-buying, dollar-selling intervention at current yen levels, so the pressure will pile on the BOJ to hike rates,” said Hiroyuki Machida, director of Japan FX and commodities sales at ANZ.
“Trump’s comments give investors reason to buy yen” on bets the BOJ could raise interest rates twice this year, he said.
The central bank ended a decade-long, massive stimulus last year on the view that Japan was on the cusp of sustainably pulling out of prolonged deflation and economic stagnation.
With inflation exceeding its target of 2pc for nearly three years, the BOJ is eyeing further interest rate hikes after raising borrowing costs to 0.5pc in January.
A majority of economists polled by Reuters expect the BOJ to hike rates once more this year, most probably during the third quarter, to 0.75pc.
